Despite ambitions of overtaking the dollar, China’s central bank will have a hard time monitoring all the transactions involved in a CBDC, though commercial banks might lend a hand.
There are technical limits to even the most technologically ambitious of central banks.
So says Sky Guo, CEO of Cypherium — an enterprise blockchain platform that has partnered with a number of Chinese cities and has worked with projected central bank digital currencies. “CBDC is definitely really hot with central banks these days,” said Guo.
CBDCs are all the rage this year, largely due to a surge in fiat-pegged stablecoin value and a sudden interest in upgrading non-cash systems amid the COVID-19 pandemic.
But while the talk surrounding CBDCs involves language taken from the world of blockchain-backed digital currencies, even entities well into CBDC research are hesitant to commit publicly to putting them on blockchains. According to Guo, however, central banks are definitely interested.
“Most of the central banks are considering DLT or blockchain or even using elements of blockchain,” said Guo. “I think CBDCs will definitely use some of blockchain’s design while also implementing centralized control.”
Many, including big wigs in United States intelligence, are especially concerned with China’s perceived lead in CBDC development. Guo agreed that “The Chinese yuan is trying to position itself as a global currency.” However, he was confident that China’s CBDC would ultimately be too bulky for distributed ledger technology:
“China’s CBDC is actually centralized, because they have 1.4 billion people and huge volume. No DLT could handle that number of transactions right now.”
Similarly, Guo saw technical limits to much-feared surveillance from the People’s Bank of China over transactions:
“China says we will have controllable anonymity. So the government will not monitor all the transactions, and technically speaking, they cannot do that. Right now, every second in China there are hundreds of thousands of transactions happening. If the government wants to monitor that, it’s a huge cost.”
However, Guo did say that the Chinese central bank could delegate more of this responsibility to commercial banks, as it plans to do with distribution.
Regarding the recent pilot of a digital yuan, Guo considered the results quite successful.