Digital Yuan Architect: 'Imagine a CBDC on Ethereum or Diem'
One of the chief architects of the Chinese digital yuan has discussed a possibility that the central bank digital currencies (CBDCs) could operate on networks such as Ethereum (ETH) or the yet-to-be-released Facebook-masterminded blockchain platform Diem (formerly Libra) as part of a two-tier operating system.
The comments came from Yao Qian, the science and technology supervision bureau chief at the China Securities Regulatory Commission (CSRC) and the former head of the central People’s Bank of China (PBoC)’s digital currency department. His recent comments, per Sina and Chain News, were made over the weekend at the 2021 International Finance Forum.
Yao was quoted as stating:
“Imagine if the digital dollar and the digital yen operated directly on blockchain networks such as Ethereum and Diem. The central bank could thus directly supply the CBDC to customers through their Blockchain-as-a-Service systems without the need for a broker.”
He spoke about operational architecture-related issues that could affect CBDCs, including the digital yuan, and claimed that increasingly countries around the world were gravitating toward two-tier models for their digital currencies. The digital yuan, too, he noted, is also two-tier in nature, meaning it could function in the same way.
Two-tier CBDC models posit a central issuing body (a central bank) distributing tokens to commercial banks, which act as intermediaries. Yao’s comments, though, appear to indicate that he believes central banks could seek to use two issuing models: one solution that uses intermediaries, and another solution that would bypass commercial banks altogether.
However, Yao said that a more flexible nature could effectively allow CBDCs to operate both as a two-tier and single-tier currency in parallel. While a single-tier option, which would involve tokens being distributed directly to end-users, would be more beneficial to unbanked individuals, Yao said, customers would benefit from the ability to choose.
“I personally think that two-tier CBDC models and single-tier operation models are not alternatives. Just like taxis and buses, the two seem to work in harmony with one another and allow users to choose between the two.”
Yao, who left his role at the PBoC in 2019, was part of the original team that began work on the digital yuan back in 2014. He claimed during his speech that he was speaking in a personal capacity and that his views were not those of the CSRC or the PBoC.
And he also dismissed an accusation made by the Federal Reserve Chairman Jerome Powell last month, with the Fed chief claiming that tokens like the digital yuan would allow the banks like the PBoC to “see every payment that’s used.”
“Helping the government see all transactions in real-time was not the PBoC’s intention. Central banks must help fiat money innovate in the face of the tide of digitalization.”
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– Economists: CBDCs to ‘Flop’ if They Aren’t Designed as Stores of Value – 2021 Trends in CBDCs: More Pilots, Maybe Some Launches, But Not For Retail