China Setting Up Infrastructure for The National Cryptocurrency
A couple of months ago, the People’s Bank of China (PBoC) announced its intention of developing a central bank digital currency (CBDC). The decision was regarded as curious by the cryptocurrency community, granted China’s fairly aggressive stance towards decentralized currencies.
However, understanding the reasoning is quite easy. To put things better into perspective, China is well on its way towards becoming a cashless society. A large percentage of citizens rely on mobile digital payment apps, such as AliPay and WeChat, which are accepted as viable payment methods in most retail stores.
The development of a CBDC would potentially increase the digital payments market, while also helping authorities curb cash usage in the underground economy, which remains the no. 1 payment option. Some of the other benefits the central bank sees include a better distribution of the currency throughout the country, alongside the ability to better monitor how funds are spent. Since the former governor of the PBoC mentioned that the development of a CBDC is inevitable, it seems like development is ramping up.
Development lead of the CBDC was given to the Digital Currency Research Institute. Recent reports indicate that the organization has posted several job offers for blockchain and cryptography experts throughout the country. Apart from seeking more employees to help with development, the research institute has reportedly filed a total of 40 patent applications. These are meant to configure and set up the financial infrastructure the CBDC will rely on, especially for the disbursement of the digital currency.
Developing a blockchain platform from scratch shouldn’t be an issue, since the Chinese government has already gotten involved with numerous blockchain-based projects. However, creating a centralized national digital currency also requires several studies, to determine the financial impact of the project, and whether it is able to fulfil economic policy goals. The research institute will also have to develop a viable strategy, meant to encourage the Chinese population to use the coin, since numerous other digital payment options are already available. To guarantee the success of the CBDC, the public will need to see actual benefits.
Despite this aspect, the digital Chinese yuan will also likely be used for inter-bank and inter-company fund transfers. Here, the benefits are clear. Employing blockchain technology to settle large monetary transfers is bound to bring about increased speed, lower transfer costs, and better protection against fraud, since the blockchain is tamper-free.