The motive behind the development of a central bank digital currency (CBDC) by the People’s Bank of China which is also known as the Central Bank of China, is currently under investigation by analysts from Binance Research. If the cryptocurrency is created, it will make China the first major country in the world to issue a sovereign virtual currency.
The publication released stated that:
“Following Facebook’s recent Libra whitepaper release, the Chinese central bank accelerated its plans to launch its own digital currency amidst growing concerns about continued capital outflows that could weaken the renminbi (RMB).”
The CBDC to be produced by China is expected to be created based on a two-tier system.
- .First Layer: The PBoC would issue and redeem China’s CBDC via commercial banks.
- .Second Layer: Commercial banks would be responsible for re-distributing China’s CBDC to retail market participants.
Even though a relatable technical roadmap was never officially released, analysts from Binance are of the view that the first tier will function based on a permissioned blockchain system. However, it is not certain that the second tier would also function based on a blockchain network.
Also, in the bid to find a lasting solution to the “Libra threat” which will create problems for China’s national currency and the country’s traditional payment systems, the PBoC’s digital asset will be supported by fiat reserves in a ratio of 1:1 and may only need KYC approval therefore making having a bank account the only requirement to utilise the currency.
The Research Team at Binance wrote that:
“To ensure monetary sovereignty and effective transmission of monetary policy, the CBDC would be issued solely by the central bank, which will give the CBDC ultimately legal status as tender. Unlike Libra or most cryptocurrencies, which are governed by distributed committees, the People’s Bank of China would have absolute control over its digital currency.”