A Central Bank Digital Currency Is Created Primarily for Replacing Existing Stablecoins, Says Expert
China is so enamored with digital currency now, the one issued by central bank and backed by the central government, although they country shows hostility to ICO and all those cryptocurrencies that are created by private firms.
But what will China’s central bank digital currency(CBDC) look like and how will it work?
Dr. Xiao Feng, Chairman and CEO of Shanghai Wanxiang Blockchain Inc. and a heavyweight figure in China’s blockchain space, offers his suggestions for creating a CBDC in an op-ed article.
“A CBDC derives from blockchain and bitcoin ideologically and technically. Therefore,it is not created for ‘blockchain+’, that is, it is not used to transform the existing monetary system and to replace the fiat money. Instead, its main task is to link the digital economy, to be connected to other cryptocurrencies, and to bridge the gap between the physical and digital worlds, the real and the digital economies, as well as the fiat and digital currency. ”Xiao wrote.
He believed the primary goal of a CBDC is to replace those stablecoins which are issued by private institutions and backed by US dollars. For example, USDT, a USD-pegged token and Dai, created by MakerDao and backed by ether as its collateral.
The reason for his argument is that there is a world of difference between a state-backed digital currency and a stablecoin in terms of credit ratings. Every blockchain-based digital currency can be considered as a global currency. The technology behind digital currency will chart a new path for the internationalization of Chinese renminbi because a national digital currency in China which is linked to the cryptocurrency world has a first-mover advantage in helping the country seize the initiative to make rules for the blockchain world. The central bank’s own digital currency will sweep other cryptocurrencies in the market.
“A CBDC in essence is ‘digital currency’, rather than ‘fiat currency’. Our current fiat monetary system is good and there is no need to create another one. But the urgent need now is to digitalize the financial system to promote the development of digital economy. ” Xiao wrote.