Central Bank Digital Currencies: Towards a Chinese Approach : Design Choices of Digital Currency Electronic Payment

University essay from Jönköping University/IHH, Företagsekonomi; Jönköping University/IHH, Företagsekonomi

Abstract: Inspired by the digital revolution to the financial industry, the discussion around central bank digital currency also attract attention from academics and central banks. The People’s Bank of China (PBOC) is also researching on China’s CBDC: digital currency electronic payment (DCEP) and announced that DCEP would be issued as soon as possible.  However, the PBOC does not systematically disclose the information of DCEP. The characteristics and mechanism design are still obscured and need to be explored deeply. This thesis analysed the classification and mechanism design choices of DCEP from the perspective of two different demands: general demand and central bank demand. Based on pragmatism philosophy, we use a mixed-methods approach that is a combination of qualitative and quantitative research. Through the interview and surveys, we identified the demands from the PBOC and the general public in China and the characteristics of DCEP from official claims. Then generate the design choices via the money flower and the pyramid of CBDC models and compare the result with the demand. The analysis shows that the DCEP belongs to type B general-purpose CB digital tokens, and it would adopt a complex multi-layer hybrid architecture design, with the support from both DLT and conventional way. In conclusion, the current mechanism design choices can meet the demands from each side to a certain extent and reached a delicate balance under the trade-off between privacy and security issues. This thesis provides an insightful view on the classification and design choices of DCEP, fulfils the lack of systematic research relating to the demand and design choices of DCEP, and reveals the public’s insufficient knowledge in DCEP.

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