The head of regtech for China’s securities authority has written an essay in support of the use of blockchain technology for the development of central bank digital currencies (CBDC).
Tao Qian (姚前), head of the regtech department of the China Securities Regulatory Commission (CSRC), wrote in an essay for Yicai that “at present the central banks of many countries are undertaking CBDC tests that are all based on blockchain technology.”
Tao points out however that there is still debate over whether CBDC should adopt blockchain technology, given that its decentralised nature conflicts with the concentrated management characteristic of a central bank.
Tao nonetheless highlights three cases which support the argument for the use of blockchain technology as a potential solutions plan for a CBDC.
“While the unique feature of blockchain technology is that it does not depend upon a central institution, this does not mean that it cannot be incorporated into the systems of existing central institutions,” Tao writes.
“We only need rational design for central banks to be able to aptly use the blockchain to effectively integrate distributed operations, and better achieve the centralised management and control of CBDC.
“The two are not inevitably in conflict.”
Tao highlights in particular the advantages of blockchain technology for CBDC development with regards to:
- Currency validation and prevention of counterfeiting,
- Wholesale-end payments settlement,
- Digitisation of cash.
Tao advocates the use of a “one currency, two reserves, three centres” (一币、两库、三中心) CBDC model, comprised of:
- “One currency,” being a a central bank digital currency, in the form of an encrypted digital chain guaranteed and issued by the central bank which represents a specific value.
- “Two reserves,”referring to the digital currency issuance reserves and digital currency commercial bank reserves. The former is the CBDC issuance fund digital reserves placed by the Chinese central bank on CBDC private clouds, and that are managed by the central bank in accordance with its cash operations management system, while the latter is the CBDC digital reserves of commercial banks.
- “Three centres,” including a verification centre, registration centre and big data analysis centre.
Tao said that the registration centre will serve to record the users and owners of CBDC, which in tandem with the use of distributed ledgers can help safeguard the security of a digital currency and facilitate “currency validation.”
In August 2019 an official from the People’s Bank of China (PBOC) said that the launch of a CBDC in China was “imminent” following a five-year period of development since 2014.