Risk-Based Regulation on the Smart Contracts in e-CNY
Smart contracts,enabled by blockchain technology,are characterized by their capacity for autonomous execution,verifiability,and resistance to tampering.However,within the context of China's institutional framework,particularly its financial regulatory system,smart contracts encounter technical and legal challenges,leading to their limited application scope.The Digital Yuan(e-CNY),China's central bank digital currency,is denoted by an encrypted string and held within digital wallets,ensuring a stable credit value and safeguarding against unauthorized third-party use post-custody.Within this operational framework,the e-CNY,when integrated with smart contracts,facilitates conditional payments.These include applications such as utilizing red packets for shopping discounts,targeted remittance or macroeconomic control,advanced fund management,and automatic settlement—thereby potentially mitigating the practical difficulties faced by traditional smart contracts.When equipped with smart contracts,the e-CNY transaction process is delineated into stages of"drafting,""locking,"and"releasing,"reinforcing that at its core,the smart contract within the e-CNY remains a computer program.As conditional legal constructs,smart contracts do not impede the intrinsic value of the e-CNY but rather govern the receipt and dispatch of payment instructions or other data transmissions via the digital wallet,which serves as the custodial medium,thus preserving the currency's integrity and efficacy as legal tender.Notwithstanding,smart contracts associated with the e-CNY are not immune to legal perils.In the drafting phase,existing legislation lacks clarity regarding the permissible domains for smart contract integration and the auditing bodies'scope.Specifications for commercial banks'auditing standards and obligations,particularly concerning network and data security,call for further elaboration.Moreover,the responsibilities of commercial banks and the People's Bank of China(PBOC)regarding the protection of personal information necessitate reinforcement.During the locking and releasing phases,the digital wallets that house the e-CNY with smart contracts exhibit legal vulnerabilities that cannot be readily resolved through supplementary legal interpretation.To enhance the regulatory framework surrounding the e-CNY's smart contracts,the drafting phase should introduce a vetting mechanism spearheaded by the PBOC and commercial banks.Crucially,as the formulation of smart contracts is intrinsic to the e-CNY's architecture and the PBOC holds the exclusive right to issue currency,it should assume the dual role of establishing technical standards and serving as the regulatory authority for smart contracts.This would ensure robust support for their application and facilitate prompt risk intervention.In the locking phase,the management of smart contracts should prioritize audit supervision and cybersecurity,necessitating clear guidelines for commercial banks on evaluating legality and converting legal language.During the releasing phase,the legal framework should support a digital wallet structure that accommodates both small,anonymous transactions and a structured co-existence with other forms.This entails establishing a parent wallet as a legitimate,autonomous currency repository and devising a distinct regulatory approach for subsidiary wallets loaded with smart contracts,drawing inspiration from the governance of specialized deposit accounts and Type II or III accounts.Consequently,a structured coexistence within the wallet's legal positioning could be achieved.
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