China’s Digital Fiat Wants to Compete With Bitcoin – But It’s Not a Crypto
- A review of over 50 patent applications submitted by the People’s Bank of China shows the design of its central bank digital currency will only resemble a cryptocurrency in limited ways.
- A senior official at the central bank said the effort will be helpful to “restrain public’s demands for crypto assets and to strengthen the country’s sovereign currency.”
- Far from emulating the decentralized aspects of ether and bitcoin, the official emphasized the issuance of the central bank’s digital currency will stick to a centralized management model.
China may be about to launch a fiat digital currency, but in all likelihood, it will only resemble a cryptocurrency on the surface.
And it probably won’t use a blockchain. While inspired to some degree by bitcoin and the like, the effort is explicitly framed as a strategy to beat them back.
The project was thrust into the spotlight last weekend when a senior official from the People’s Bank of China (PBoC) said at a closed-door conference that the country’s central bank digital currency (CBDC) is ready to launch.
In his speech, widely covered in the press, Changchun Mu, deputy director at the PBoC’s payments division, notably said:
“Since last year, the staff at the Digital Currency Research Lab have been working 996 to develop the system. We can say the CBDC is now ready to launch at one’s call.”(996 is a phrase commonly used in the Chinese tech startup scene, referring to working from 9 a.m. to 9 p.m., six days a week.)
The CBDC aims to replace M0, meaning cash in circulation, via a two-tier system: the central bank issues the digital yuan only to commercial banks, who will further issue it to the public, Mu said. This approach is perhaps unsurprising since Yao Qian, the former chief of the research lab, hinted at this design in an op-ed published in CoinDesk in 2017.
However, one comment from Mu that got overlooked by many is that he believes “the two-tier issuance system will be helpful to restrain the public’s demands for crypto assets and strengthen the country’s sovereign currency.”
Mu did not elaborate on how everyday users would interact with this proposed mechanism or to what extent the CBDC really employs distributed ledger technology. And it remains unclear when the central bank plans to test and roll it out or, upon its launch, whether it will be optional or mandatory for Chinese consumers.
But dozens of patent applications submitted by the research lab to China’s State Intellectual Property Office reviewed by CoinDesk offer a window into the PBoC’s thinking on how the system may function and its similarities and (more importantly) differences with crypto.
Crypto-inspired
The PBoC’s Digital Currency Research Lab was formally launched in the summer of 2017 and spearheaded by Yao Qian, although Mu indicated the work has been ongoing for five years. Yao left the position for a different agency around October 2018.To date, the lab has filed more than 50 patent applications, all either invented or co-invented by Yao, and about 20 of those focus on design specifications of a so-called.......
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