China Central Bank: How smart contracts can be applied in CBDC?

7 min readSep 7, 2022


Reporter: Han Yu,China Banking and Insurance News

The 2022 China International Finance Annual Forum was held on September 1, 2022, during the 2022 China International Fair for Trade in Services. Changchun Mu, director of the Digital Currency Institute of the People’s Bank of China (PBOC) , gave a keynote speech on e-CNY and smart contracts at the forum.

Changchun Mu stated that smart contracts have huge potential in supporting the digital economy to reduce costs and improve efficiency as well as promote service innovation and development. The e-CNY smart contracts have a wide range of application scenarios, which can reduce the execution costs of economic activities, optimize the business environment, and advance the development of the digital economy.

E-CNY smart contracts have been successfully applied in the fields of government subsidies, retail marketing and prepaid fund management. With the improvement of the underlying platform and related institutional arrangements, the implementation will be accelerated on a larger scale.

The significant advantages of e-CNY smart contracts

With the rapid development of financial technology, there are no longer obstacles in the technical operating conditions of smart contracts. Whether smart contracts can be widely used depends more on the establishment of a credible and open ecosystem.

Changchun Mu said that in the top-level design of the e-CNY, the programmability of the e-CNY is realized by loading smart contracts without affecting the currency function. In this way, the e-CNY can conduct automatic payment transactions safely and compliantly according to the conditions and rules agreed by the parties of the transaction. As a digital form of fiat currency, e-CNY has great advantages in establishing an ecosystem that supports applying smart contracts.

First, the advantage of trust of e-CNY that is reflected in two levels. One is the credibility of payment and settlement. The e-CNY is endorsed by the state’s credit, which has legal compensation and can provide a credible settlement tool for the automatic execution of smart contracts. Another is the credibility of the transaction environment. The development and operation of smart contracts require a credible environment. The construction of a credible environment needs the support of rules and standards to provide guidance and constraints for participants to ensure that the “self-enforcement” of smart contracts is recognized rather than self-certified and that the legitimacy of smart contracts is recognized by competent authorities, instead of “wishful thinking” by the sponsors. The e-CNY is a public product provided by the PBOC for the public. The e-CNY system is a financial infrastructure designed by the PBOC, which can establish a fair and trustworthy transaction environment and support the credible executions of smart contracts based on the e-CNY.

Second, the advantage of interconnectivity of e-CNY that is also reflected in two levels. One is the interconnectivity among the smart contract system and external systems. IT systems used to form an information silo while the systems of various institutions form a closed loop. The smart contract system needs to interact with these systems to realize data exchange such as identity verification and compliance checking, so as to support the credible executions and value transfer of smart contracts. As the fiat currency, e-CNY can be widely connected to various industry ecosystems that enable the exchange of information and value. Another is the interconnectivity of the operating environment. Smart contracts are applied in the economic activities of different industries and scenarios. Only by realizing the interconnectivity of operating environments can the universality of contract templates be ensured with “one-time development, multiple reuse across institutions”. E-CNY naturally has the advantages of breaking barriers and interconnecting as the fiat currency. The establishment of a smart contract system based on e-CNY can better realize the interoperability of operating environments.

Third is the late-mover advantage. The e-CNY system is a new type of financial infrastructure in the era of digital economy. It adheres to a long-term evolutionary technical route that continues to iterate and dynamically upgrades application technologies. Continuously promoting the research and development of new technologies and the improvement of business models can build a creliable, efficient, adaptive and open smart contract ecosystem without any historical burden.

E-CNY smart contract ecosystem construction

Changchun Mu believes that under the top-level design framework of the e-CNY, the e-CNY smart contracts must not only meet the characteristics of “consistency, observability, verifiability, privacy, and self-enforcement” as the smart contracts, but also give full play to the business and technological advantages of the e-CNY system to better promote the digital economy. Therefore, the e-CNY smart contracts ecology should be built according to the following directions and principles:


Adhere to the centralized management and two-tier operation structure. In order to realize a credible operating environment for smart contracts, we are promoting the construction of a credible environment for e-CNY smart contracts and formulating supportive business specifications and technical standards, thus forming extensive mutual trust and consensus under the centralized management of the PBOC. Meanwhile, smart contracts are faced with general business scenarios. In order to adapt to the differentiated needs of various scenarios, it is necessary to provide a sufficient and safe environment for the development of smart contracts, so as to give full play to the business and technical strength of designated operating agencies and other market institutions, stimulate the enthusiasm and creativity of each market institution that jointly build and improve smart contracts ecology.


Guarantee the legitimacy and validity of the contract template. Smart contracts are related to the economic interests of the participants, the business environment and economic and financial stability. The legitimacy and consistency of the contract template are fundamental to correctly develop the value of “mandatory performance”. It may bring economic and financial risks without good contract template management. Therefore, smart contracts can only be registered as templates after compliance review and test to ensure that the contract templates are in compliance with laws and regulations and meet regulatory requirements such as “three antis”. We will build a e-CNY smart contracts ecological service platform, uniformly register the contract templates that have passed the review and verify the consistency of the templates to ensure smart contracts are tamper-resistant when institutions call them.


Adhere to openness and open source. In order to meet diverse needs of e-CNY smart contracts, it is necessary to lower the threshold for contract development and conclusion, encourage the whole society to participate in the development of contract templates and the innovation of applications, and thus establish a rich, efficient and convenient smart contract supply system. Therefore, open and open source is an inevitable choice. The e-CNY smart contract ecological service platform can become an open platform like the mobile application market. All kinds of institutions can provide smart contract services that can be combined and used according to the users’ wishes like building blocks on the platform to realize openness, open source, co-construction and sharing.


Continue to upgrade technology to prevent technical risks. Financial business is always faced with hidden risks of cyber-attacks while any security technology has validity period. Security prevention and control is a long-term process of “offensive and defensive”. Therefore, smart contracts must not only ensure the security of templates, but also continue to carry out technical upgrades and security reinforcement. The e-CNY smart contract ecosystem will apply the latest security technologies and make use of the technical resources and capabilities of the national team to ensure the security of smart contracts.

The broad application prospect of e-CNY smart contracts

In different scenarios, the functions of e-CNY smart contracts are also diverse. For example, in the field of prepaid fund management such as prepaid consumption, smart contracts can effectively prevent misappropriation of funds, achieve transparent management, take into account existing business models and protect the interests of all parties. In the field of targeted payment such as financial subsidies and scientific research funds, smart contracts can monitor the use of payment and improve the efficiency of government funds. In the field of fund settlement such as fund raising and smart ledger, smart contracts can solve the compliance problems of payment transaction processing, improve the accuracy and automation level of fund processing, and reduce manual processing errors and risks. In the marketing and retail fields such as “red packets” and smart payment, smart contracts can reduce implementation costs, protect user rights and improve customer experience. In the field of domestic and foreign trade, it can provide a closed-loop solution of “signing and executing contracts” to improve the binding force of contract execution, realize the synchronization of capital flow and information flow, and reduce settlement and compliance costs.

Changchun Mu pointed out that in the next step, Working Group on E-CNY Research and Development of the People’s Bank of China will work with market institutes to accelerate the construction of the e-CNY smart contract ecosystem, give full play to the joint efforts of all parties of industries, improve relevant business norms and standard systems, establish a compliance review mechanism and study judicial connection arrangements with relevant departments.

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Colin Wu, Chinese journalist, won 2013 China News Award