The Current State of CBDCs as the PBOC Reveals Digital Yuan Technical Details
As the world embraces technology and the Coronavirus pandemic has forced businesses to adopt a cashless approach, several central banks around the world are exploring whether or not they could issue a CBDC to complement cash. A CBDC or Central Bank Digital Currency is the digital form of fiat money that will be generated by the country’s central bank and can be used as legal tender. So, before we take a look at some of the CBDC projects around the world, let’s understand the benefits of CBDC usage.
Why use CBDC?
- Fiat transactions are solely dependent on third-parties like banks or financial institutions. CBDCs give you full control over your money and enables you to directly transact with the others without having to go through a bank.
- CBDCs can provide viable financial services to people who don’t have access to a basic bank account.
- Faster, cheaper, and more efficient payments, both domestically and cross-border.
- Since the CBDC is based on blockchain technology, every single coin could be traced to its very source, bringing in unprecedented levels of transparency.
- A secure, interoperable, and standard payment system issued and governed by a Central Bank can help increase trust in the entire national payment system.
CBDC solutions around the world
- Bahamas: The “Sand Dollar” currently has pilot programs in two of its largest island chains.
- Barbados: A blockchain-based version of the Barbadian dollar was released in 2016.
- China: The People’s Bank of China recently revealed some technical details about its Digital Currency Electronic Payment (DCEP). More on this later.
- France: The central bank of France officially announced a program of experiments to test the interbank integration of CBDCs.
- Marshall Islands: The government has partnered with Algorand to create the Marshallese Sovereign (SOV)
- Saudi Arabia and the United Arab Emirates: The central banks of the two gulf powerhouses are jointly issuing a CBDC called “Aber.” The goal is to increase interbank trading opportunities and boost financial co-operation.
- Sweden: The Riksbank, Sweden’s central bank, started the E-krona project in 2017 to study the need and possibility of a CBDC. In February 2020, the bank announced the launch of a year-long pilot project of the CBDC.
- Thailand: The Bank of Thailand (BOT) has been actively working on a PoC of its CBDC called “Project Inthanon.” The project aims to build the CBDC as a tool to promote collaborative learning about distributed ledger technology (DLT) by Thai financial institutions and to develop a PoC for tokenized RTGS.
- Turkey: Turkish President, Recep Tayyip Erdogan, has mandated the development of the digital Lira to finish by the end of 2020.
- Uruguay: The E-peso was successfully piloted from Nov. 2017 to Apr. 2018.
China and the Digital Yuan
A spokesperson for the People’s Bank of China (PBOC) revealed on the China Central Television that pilot tests are currently underway for its new digital currency, aka DCEP (digital currency/electronic payment). The tests are presently being carried out in the cities of Shenzhen, Suzhou, Xiongan new area, Chengdu, and the future site of the winter Olympics. However, the bank also made it clear that the pilot tests don’t imply that the CBDC has been greenlighted for future public usage.
“The current closed test of Digital Yuan will not affect the commercial operation of listed institutions, nor will it affect the RMB issuance and circulation system, financial market and social economy outside the test environment.”
The DCEP is being tested as a part of a transport subsidies scheme for government and domestic enterprise workers.
Digital Yuan – Underneath the Hood
The following technical and design details about the digital currency were also revealed by the representative:
- It has a two-layer architecture and a two-tier delivery system.
- It utilizes “dual-offline” technology to ensure that transactions will still get processed even if China’s online banking and other virtual payment platforms go offline due to poor network signal strength.
- DCEP works independently from China’s existing banking system. It isn’t tied or dependent on the users’ bank accounts.
- The Digital Yuan will be issued directly by the PBOC, making it different from other cryptocurrencies. It will also be backed by the nation’s credit to ensure price stability.
We are very excited by the sheer potential of the Digital Yuan. We believe that not only will it bring about unprecedented global collaboration, but it will also provide the unbanked population with some much-needed financial services. Plus, as more governments around the world embrace CBDCs, it will inevitably lead to the broader adoption of blockchain technology and cryptocurrencies.