Chinese banks and firms advance in digital yuan smart contract development

Chinese banks and firms advance in digital yuan smart contract development

The Growing Use of Digital Yuan Smart Contracts in China’s Financial and Industrial Sectors

The adoption of digital yuan-powered smart contracts is gaining traction in China’s financial and industrial sectors. In a recent development, the state-run Postal Savings Bank of China has officially co-launched the nation’s first prepayment product that utilizes digital yuan smart contracts. This move highlights the increasing interest of Chinese banks and businesses in leveraging the capabilities of central bank digital currencies (CBDCs) and smart contracts.

Unlike many other CBDC projects around the world, China’s digital yuan, also known as e-CNY, is not based on blockchain technology. Instead, it employs centralized IT solutions controlled by the central People’s Bank of China (PBoC). However, the PBoC has been actively seeking to integrate IT advances from the worlds of Bitcoin, cryptocurrencies, and blockchain into the e-CNY project, including the utilization of smart contract technology.

Smart contracts are programmable agreements that automatically execute predefined actions when certain conditions are met. Chinese economic thinkers believe that smart contracts can bring significant benefits to various areas of business, such as financing and local government spending. The integration of digital yuan smart contracts into the merchant business field is expected to enhance the adoption of the digital RMB in the prepayment space, particularly in industries where customized products or services are provided.

China Fangyuan, a business group specializing in heavy machinery, transport, and construction, has collaborated with the Postal Savings Bank to create a platform called Wuka. This platform offers merchants a wide range of business capabilities, including card issuance, project supervision, marketing, and management. By introducing digital yuan smart contracts into this platform, Wuka aims to empower merchants with more efficient and secure transaction processes.

The exploration of smart contract technology aligned with digital yuan is not limited to the Postal Savings Bank. The Digital Currency Department of the Industrial and Commercial Bank of China (ICBC) also recognizes the potential of smart contracts in the realm of digital yuan-powered financial services. The ICBC stated that in the future, all contracts based on digital payments in the digital economy will be compatible with digital yuan-powered financial services.

One of the key advantages of integrating smart contracts with the digital yuan is the enhanced trust and enforceability it brings to business transactions. The ICBC believes that the use of digital yuan smart contracts can effectively ensure the enforcement and automatic honoring of contracts, particularly in situations where trust is weak and contract breaches occur frequently. By leveraging the national creditworthiness of the PBoC, credit rating in business transactions can be upgraded, enabling mutual recognition and interoperability across various sectors.

While the adoption of digital yuan and smart contracts is primarily focused on the financial sector, it is gradually expanding to other areas as well. The 19th Asian Games held in Hangzhou provided an opportunity for the PBoC to showcase the digital yuan to an international audience. Athletes, spectators, and coaches attending the games were exposed to the coin at “experience booths” set up by banks such as the ICBC. Domestic spectators were also encouraged to utilize the digital yuan to purchase tickets and pay for public transport rides to event venues.

The growing interest in digital yuan-powered smart contracts highlights China’s commitment to leveraging technological advancements to strengthen its financial infrastructure. By combining digital currency with the power of smart contracts, China aims to enhance trust, efficiency, and security in various business sectors. As the use of CBDCs and smart contracts becomes more prevalent, it is crucial for businesses and financial institutions worldwide to closely monitor and learn from China’s experiences in this space.