China was working on its official virtual currency from 2014 and now the official virtual currency is almost ready.
People’s Bank of China’s (PBoC), Deputy Chief of Payment and Settlement Division, Mu Changchun was speaking at the ‘China Finance 40 Group’ meeting on Saturday; he revealed that China will soon launch its official CBDC (Central Bank Digital Currency). However, he did not reveal the exact date of the CBDC launch but outlined that it will release in the days to come.
At the meeting, Mu mentioned that the central bank digital currency standard is ready and the Digital Money Research Group of PBOC has completely used the blockchain model for the virtual currency. CBDC of China will not depend fully on clean blockchain model because it could be difficult for the virtual currency to gain the throughput needed for a retail operation.
To become the foremost leading central bank to launch a virtual currency, the People’s Bank of China has executed a test of the digital currency prototype, ever since 2014, when the bank formed a research team to achieve the goal, Mu mentioned.
In the meeting, Mu told, ‘People’s Bank digital currency can now be said to be ready.’
According to Changchun, the CBDC will use a two-tier operating model,
“The People’s Bank of China is the upper level and the commercial banks are the second level. This dual delivery system is suitable for our national conditions. It can use existing resources to mobilize the enthusiasm of commercial banks and smoothly improve the acceptance of digital currency.”
The previous report mentions that the central bank of China, PBoC has accelerated designing of its official digital currency and this step was implemented with regards to Facebook’s’ Libra coin, announced on 18th June 2019.
The virtual currency is specifically developed to meet ‘small scale retail high-frequency business scenarios,’ Mu stated.
The PBoC bank will be accountable for the transfer between virtual currency and traditional fiat currency along with active banks and other organizations. People can transfer virtual currency across these active banks and organizations.
Mu outlined, in the single-tier model, wherein the central bank will directly participate in the issue and transfer of new virtual currency with large scale people, it is not recommended as it will allow for a decline in bank deposits which might damage the banking system of China and also the economy.
He briefed saying,
“If we adopt the single-tier structure, the mass public will likely prefer to exchange their money for the central bank-backed digital currency with the PBoC, instead of holding the money in bank deposits. A squeeze effect on the bank deposits in commercial banks tends to occur, which will also affect the ability of banks to lend, and raise the social financing cost.”
The two-ties operating model is perfect for China, which has a difficult economy, wide territory, and a huge population. It will further enhance the availability and scale of the public interest in virtual currency usage. It will also help prevent ‘concentration of risk and ‘financial disintermediation, Mu mentioned.
Meanwhile, at the meeting, Chairman of China UnionPay, Shaofu Jun expressed that it could be tough to achieve the objective of CBDC. However, China’s CBDC might address concerns relating to cross-border transactions, legacy failures, and long lag times.
Mu also informed the new virtual currency will be determined as second to M0 money that does not provide interest for the holder.