DC/EP and Central Bank Digital Currency

DC/EP stands for Digital Currency Electronic Payment, a central bank digital currency.

• It is: a dual-layer research and pilot project plan.
• It is not: a payment product.

Current State of Electronic Payments

More than half of China's population is using electronic payments, with mobile payments accounting for a significant portion of personal consumption payment methods.

What Problems Does DC/EP Aim to Solve?

1. Consumers need better and cheaper payment methods, with retail as the core use case.
2. Mobile integration has replaced many items such as ID cards, keys, and wallets.
3. Merchant application scenarios exist both online and offline.
4. Encourage competition and innovation among various upper-level institutions.
5. Protect privacy.

Dual-Layer System

• The first layer is the central bank.
• The second layer consists of commercial banks, telecom operators, and internet payment platforms.

The second layer has the motivation and cost to perform well, while the first layer ensures that the second layer bears sufficient risk and responsibility.

How to Promote It?

For smaller countries, it is relatively simple to replace paper money with plastic notes within a year; however, in China, each update of the Renminbi has taken about 10 years and still leaves many legacy issues. Fortunately, multiple parallel solutions are possible, making the continuous scalability of the solutions important.

One of the main tasks of the central bank is to maintain currency stability.

• The focus of research and development is not on the digital currency product itself, but on settlement and clearing.
• Improve the connectivity of different payment products.
• Prepare emergency and alternative solutions.

Main Technological Solutions

1. Account-based electronic wallets, with merchants using QR codes.
2. NFC.

Other options include bank cards and IC cards.

Privacy Protection

User privacy must be protected, but it cannot be 100% anonymous; acceptance of oversight by authoritative institutions is necessary.

Issues with Blockchain

Alternative solutions involving blockchain and distributed ledger technology are still under development, but:

1. Throughput is insufficient to support retail use cases.
2. The immutability requirement conflicts with the need for chargebacks in case of incorrect payments.

Cross-Border Payments

Libra's focus on cross-border remittances as a key application is problematic because retail terminals cannot be used directly, leading to issues of double conversion on both sides of the border.

Different national conditions result in significant resistance; for example, internationally, there is concern about anti-money laundering, anti-terrorism, and anti-drug financing, while China also pays attention to anti-gambling. Many countries have a need to prevent dollarization.