People’s Bank of China has announced that it is issuing a digital currency. Some says it is a counterpart of Bitcoin and Libra, some says it has nothing to do with cryptocurrency. So, what is it?
What is CBDC?
CDBC is not the name of digital currency People’s Bank of China is issuing. CBDC stands for Central Bank Digital Currency, which stands for e-money issued by the central bank. So if the Bank of Korea or Japan or Indonesia issues digital currency, it would also be CBDC.
CBDC may or may not be a cryptocurrency. It depends on which technology used to issue the digital currency. CBDCs can also be classified as cryptocurrencies if they are issued using distributed ledger technologies such as blockchain. But if it is a centralized currency managed by the central bank, it is far from what we know as cryptocurrencies.
CBDCs tend to be linked to cryptocurrencies, but People’s Bank of China has been studying CBDC issuance even before the investment craze for cryptocurrencies was booming. Already since the 1990s, there has been research on digital currency. It was in 2014 that China began to study CBDC in earnest. Of course, it is true that CBDC research has become more active after the cryptocurrency craze.
Is the CBDC of the People’s Bank a cryptocurrency?
Based on reports from local media and foreign media outlets, it seems that the CBDC of the People’s Bank of China is not a cryptocurrency.
CBDC might be a centralized digital currency that can be absolutely controlled by the People’s Bank of China, according to a recent report released by Binance.
According to the report, China’s CBDC is linked to Yuan by 1:1, followed by a two-tier system consisting of central banks, commercial banks and retail stores. Simply, it is similar as a digitalized check card, connected through apps in smartphones.
What does it mean internationally?
The People’s Bank of China also expressed hope that foreigners willing to use CBDCs, which are easier to use. If so, foreigners will be able to download electronic wallet and buy CBDC just as they exchange their own currency for yuan.
However, China’s CBDC is centralized and transaction records remain on the central server. If the Chinese government wants, it can look into the details of the deal at any time. In other words, the Chinese government has tightened its control over the Yuan.
