The Chinese central bank’s proposed digital currency (CBDC) could operate on public blockchain networks such as Ethereum. The proposal to integrate the so-called digital yuan into the platform would aim to ensure that the crypto-currency is a “smart” currency and not a representation of cash.
The initiative was launched this weekend by Yao Qian, director of the Securities Regulatory Commission’s Office of Science and Technology. Speaking at the “Digital Currency and Future Transformation” forum in Beijing, the official explained that the country needed to take advantage of the digital nature of currency and innovate in its implementation.
“We can imagine that if the digital dollar and digital yen were managed directly on blockchain networks such as Ethereum and Diem (Pound), central banks could use their services to provide digital currencies directly to users without the need for intermediaries,” emphasised Qian, who is a former director of CBDCs at the People’s Bank of China.
The official mentioned the possible adoption of this type of contract, as Ethereum is based on smart contracts or programmable transactions. The weak point of the system, according to Mr Qian, is security, as the codes are generally flawed.
On this point, the director recommended a more cautious arrival, in stages, as the technology still needs to be improved and become more mature. The first stages of a possible digital yuan on Ethereum would include simple smart contracts, but with increasing complexity as security is guaranteed.
Financial inclusion with network control
For Qian, having the central bank manage its digital currency through such a platform would encourage financial inclusion. In other words, groups without bank accounts could benefit, as they would receive direct cash through private digital wallets.
The scenario proposed by the Chinese official does not take into account two fundamental aspects for the government: sovereignty and control of the network. The Asian giant could feel disadvantaged by using an external platform rather than one designed and controlled by itself.
The country has developed multiple tests with the digital yuan that include transactions at certain merchants or even with ATMs, as reported by CryptoNews. China is one of the nations betting the most on CBDCs as a means of transforming finance and encouraging the digitisation of the economy.
