Looks like the Central bank of China is launching its digital currency CBDC sooner than anticipated. So far, the bank has completed its top-layer design and joint testing of the currency. The deputy of the People’s Bank of China Mu Changchun said that CBDC is now ready, though he did not give any time scales.
According to a recent report that was done by Sina, which is a news agency, the Peoples Bank of China (PBoC) was the one responsible and have already done the design of the currency, developed standards for it, done research and development and done testing of the digital yuan. The bank is currently working on cybersecurity issues and information infrastructure.
Testing of CBDC
The first time for China to do a real-world test of its currency was in early December 2019 with pilots set for Shenzhen and Suzhou.
From the tests, it was evident that CBDC will not only be used in the central bank system but will a so be implemented in other sectors such as health, education and transportation sectors among others.
Contrary to expectation, CBDC will not be blockchain-based but will be backed by the central bank. The bank will issue the currency to financial institutions who will then circulate the currency to their customers. As much as the currency will be centrally controlled by the central bank, it plans to embrace the technology of decentralization such as it does not fully control the currency like fiat currency.
The consideration of China to launch CBDC dates back to 2014 and from then the country has committed a lot of resources in its research and backing of the currency.
China took the route f not making it blockchain-based since Bitcoin and Ethereum have had poor performance due to congestion in the network. According to reports, both Bitcoin and Ethereum do a maximum of 20 transactions per second which is very low as compared to CBDC which is set to do up to 92, 771 transactions per second.
CBDC will operate on a two-tier structure since it does not plan to be consumer-facing. It also does not have the scale of infrastructure that is required considering it still plans to optimize the transaction speeds. The two-tier structure will also make sure that the monetary policy is not interfered with.
Beginning of the year, PBoC had a positive report on the progress of the Yuan.
Security of CBDC
From the onset, China set up a law governing cryptographic password management to set standards for cryptography and encryption as a strategy for rolling out the CBDC.
Even though CBDC will not be blockchain based, each unit of the currency is uniquely made to prevent counterfeits. It will be made with the same concept used to make digital currencies only that for CBDC it will be centrally governed by the central bank.