September 17, 2021
In a recent speech, Di Gang, deputy director of China’s central bank Digital Currency Research Institute made this statement.
China is quite advanced in its CBDC pilots, but its core digital yuan system is centralized. It’s a two-layer system with the central bank controlling the core layer using conventional technologies and banks acting as intermediaries in the same way they do for cash. And banks can use smart contracts for programmable money.
The People’s Bank of China chose a conventional technology approach for CBDC “because of the immaturity, performance, and scalability challenges that blockchain presents,” he said. Although Di Gang said it is exploring distributed ledger for issuance, he reiterated these shortcomings, saying blockchain is not appropriate for high concurrency, high performance and strong privacy.
He highlighted three areas where the central bank is using blockchain. They are:
- exploring DLT for digital yuan issuance, which will help with reconciliation
- participating in m-CBDC cross border trials with the BIS, Thailand, Hong Kong and UAE
- using blockchain for trade finance.
He said that the number one challenge is scaling and performance issues, which can be addressed using sidechains, multichain architectures and hardware acceleration. And there’s a need to enable interoperability between on-chain and off-chain data, he said.
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