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Chinese Banks, Firms Make Digital Yuan Smart Contract Progress

Chinese banks and enterprises are keen to intensify their utilization of smart contracts powered by the digital yuan, reflecting the financial and business sectors’ attention to CBDC advancements.

According to the Securities Times (cited via Stockstar), the government-backed Postal Savings Bank of China has jointly initiated the country’s inaugural “prepayment product” that employs digital yuan smart contracts.

Distinctly from numerous other CBDC endeavors, the e-CNY doesn’t operate on blockchain technology.

Instead of leveraging decentralized ledger technology, it employs centralized IT strategies, all of which are overseen by the central People’s Bank of China (PBoC).

However, the PBoC has displayed interest in adopting technological breakthroughs from the domains of Bitcoin, cryptocurrencies, and blockchain, aiming to incorporate these innovations into the e-CNY initiative.

Smart contract technology is one such innovation that’s being eyed.

Chinese economic experts anticipate that this technology will offer substantial benefits in sectors such as finance and municipal government expenditures.

The Postal Savings Bank’s system has been developed in partnership with China Fangyuan, a business conglomerate with interests in heavy machinery, transportation, and construction.

This collaborative venture has resulted in a platform named Wuka, which promises merchants an array of “business functionalities” encompassing areas like card distribution, project monitoring, promotional strategies, and overall management.

The media source highlighted Wuka’s distinct approach by “incorporating digital yuan smart contracts into the commercial arena.”

This development is also seen as a strategy to “boost the adoption of digital RMB” particularly in the “prepayment domain.”

Such prepayment arrangements are prevalent in sectors where suppliers deliver specialized or bespoke products and services.

Banks around the globe are showing heightened interest in the adoption of smart contract technology.

However, China stands out as state-affiliated institutions there are making strides to intertwine this technology with their digital yuan initiative.

In an article featured in the financial periodical Caixin, the Digital Currency Department of the Industrial and Commercial Bank of China (ICBC) stated:

“In the upcoming times, every contract centered on payments within the digital realm will align with digital yuan-driven financial services.”

ICBC emphasized the unique value proposition of digital yuan smart contracts, highlighting their potential especially “in scenarios marked by fragile trust and recurrent contractual violations.”

The e-CNY & Smart Contracts: New Ground for the Chinese Digital Yuan?

The bank highlighted that the incorporation of e-CNY into smart contracts will “efficiently ensure that contracts are both enforced and automatically fulfilled.”

The rationale for integrating the CBDC into smart contracts, as put forward by ICBC, lies in the elevation of “credit trustworthiness from being based on the commercial credibility of a business entity to being anchored on the national credit stature of the PBoC.”

Consequently, the usage of this digital currency will “facilitate mutual acknowledgment and compatibility across various industrial domains,” concluded ICBC.

Shifting the focus to consumer engagement, the PBoC aims to capture global interest for its digital currency during the 19th Asian Games. The event commenced on September 21 in Hangzhou.

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