The People's Bank of China (PBoC) has developed a prototype for issuing a national cryptocurrency, as Cointelegraph reported on Aug. 11. As it turned out, it will be powered by a two-tier operating system, which, however, will not be fully decentralized.
What do we actually know?
The fact that China is a financial institution has been able to provide information on Chinese economics and finance. Speaking at the event, PBoC Deputy Director Mu Changchun did not disclose the development and release date, although he expressed his belief that the digital currency will replace cash and other cryptocurrencies, and will also help increase the turnover of the yuan. renminbi, in the world.
According to the new currency will be able to bypass trade sanctions imposed by the United States, and will also increase investment flows to the country.
Some analysts suggest that after the U.S. announced the increase in trade tariffs for Chinese goods, foreign investors rushed to exchange renminbi for more reliable assets – e.g., gold and other currencies, including Bitcoin (BTC), which grew by $ 3,000 to almost $ 12,000 at the beginning of August.
Related: Digital Yuan: Weapon in US Trade War or Attempt to Manipulate Bitcoin?
The media also attributes China's decision to create its own state of the art to the promotion of Facebook's Libra cryptocurrency. In July, Wang Xin, head of the PBoC Research Bureau, said that Libra threatens the international monetary system and countries should develop their digital currency to prevent the negative economic consequences. The national currency of the issuance of digital money.
It is known that local commercial institutions and corporations such as Alibaba, Huawei and Tencent, may be involved in the process. Some of them have already agreed to participate in the project. How to pay for mobile wallets and exchange their yuan for digital currency, and then make payments with it. At the same time, the Chinese central bank will take full control over all operations.
New cryptocurrency won’t be decentralized
Hot debates caused by the Chinese government's announcement regarding the development of its own cryptocurrency have resulted in even more questions arising. Most of all, users were interested in how soon they would see new currency in action and how China would be able to create a whole decentralized system for its functioning at a short notice.
As it turned out, the emission of the future cryptocurrency will be carried out through a two-level system, with the People's Bank of China being at the top level. The second level will be taken by commercial banks, as highlighted during a speech at China Finance 40:
“This two-tier system is suitable for our national conditions. It can be used to support and develop commercial banks and smooth promote digital currency. "
At the same time, blockchain will be used only partially. He made three arguments in favor of this decision based on the following reasons:
China is a complex economy with a vast territory and large population, which implies possible difficulties in the mass transition to the new technology. China’s central bank proposes two-tier operating structure to improve the accessibility of the proposed cryptocurrency and the smoother commissioning of future digital assets. Secondly, a two-tier structure will fully engage the resources, talents and technological advantages of commercial organizations, promote innovation and aid in the fight for technological superiority.
Thirdly, the use of single-tier operating architecture may reduce the role of banks in the financial services chain. That’s central bank will be able to reduce their competitiveness directly This may lead to increased prices and social financing costs, as well as damage to the real economy.
Negative public sentiment has seemingly continued to worsen as new details leaked on the internet. Many Contractor, bloggers and crypto enthusiasts opined that new cryptocurrency would be used for tracking user’s data or controlling their funds. Mati Greenspan, senior analyst at eToro, expressed a similar view on China central bank's new initiative:
"They want a greater level of control and surveillance. This will give them a bit more hands-on authority. This currency is not designed to give people financial freedom, like other forms of crypto, but rather to provide Chinese government with a way to monitor transactions. "
The blogger Ben Yorke devoted an entire article to expose the future
There is nothing public at all: In essence, the creation of a cryptocurrent impact on the use of technology and, accordingly, the involvement of experienced organizations. At the same time, the Chinese central bank intends to use private chain that will operate on fully controlled private nodes.
China already has its digital currency: Yorke refers to the payment systems Alipay and WeChat Pay, which has completely replaced the Chinese traditional payment methods. In 2018, they processed 57 billion transactions at almost 1,800 transactions per second (TPS), which is higher than the bandwidth of Bitcoin, Ethereum (ETH), Ripple (XRP) and EOS. In addition, the author notes the absolute absence of anonymity: In such systems, user information is tied to the wallet address, which is controlled by the developers.
It’s all about control: As a final argument, Yorke says, "to make cross-border transactions easier," but to restrict local banks' access to loans and shadow-banking.
Risks will be avoided
Probably in an attempt to resolve public concerns, PBoC members said they would take measures to prevent an overrepresentation of digital currency and, as a result, the manipulations involved. To ensure that the PBoCs digital currency is not overrepresented, commercial institutions will transfer the full transaction amount and 100% reserve to the People's Bank of China. Thus, the new cryptocurrency will remain central.
Related: Bitcoin Is Property, Chinese Court Rules – No Crypto Ban Contradiction
That added to the future currency doesn''t pay interest on cash, it will not trigger financial disintermediation, and it will have a big impact on the existing real economy. In addition, all current regulations on cash management, Anti-Money Laundering and counter-terrorism financing should be observed.
To be continued
National cryptocurrency raises overall, the soon to be created more questions and doubts U.S. China trade war, as well as use in its disputes with Washington. However, it is still unknown whether or not the currency will compete with decentralized coins such as Bitcoin. The question of the timelines also remains open. According to Greenspan, the central bank's statement might be interpreted not quite correctly:
“This would not be difficult for the Chinese government to put out in a week or two. This has more to do with political power. Capital controls are very tight in China, and they want to keep a strong eye on money supply. I know what they probably mean when they say ‘it’s ready to go’ is that they simply have the power to put it out. ”