China’s CBDC Raises More Questions Than Answers

At EY’s APAC Blockchain Virtual Meetup session on CBDCs (Central Bank Digital Currencies), the development of China’s own CBDC was raised, with panelists exchanging views on the country’s roll out of the e-CNY and its approach to public blockchains and mainstream cryptocurrencies.

“All the CBDCs from major countries will be centralised, at least in terms of issuance. Even if it’s decentralised, it’ll be a permission-limited structure”, said Yifan He, CEO of Red Date Technology – the architect of China’s state-backed Blockchain-based Service Network , when asked about the lack of decentralisation, privacy and programmability in CBDCs.

Yifan also believes that the e-CNY is no different from regular bank accounts or WeChat and Alipay. However, he emphasised that the PBoC-backed network is more scalable due to its centralisation.

“At the back end, the PBoC (People’s Bank of China) is building a massive system to handle probably half a million TPS (transactions per second) in the future. Only centralised systems can handle that kind of TPS, [public] blockchains can’t”, he said.

Questions remain over how CBDCs can facilitate financial inclusion, a rhetoric often promoted by China’s government, particularly if the e-CNY operates in a similar to fashion to existing private fintech platforms like Alipay, which can already process approximately 120,000 TPS – nearly double what Visa and Mastercard are capable of processing.

“China is entering into a cashless society with or without CBDC,” Roy Liu, an EY China executive, told Blockhead on the sidelines of the meetup when probed further on the subject.

“We have seen small changes in the testing. Users don’t need KYC, just a mobile number to activate the CBDC wallet in China. This will help on the financial inclusion bit. And in the long run, we’ll see more initiatives”, he said

Less speculation, more application?

When asked if China was missing out on opportunities in crypto space and whether the development of CBDCs can make up for that, Yifan said that the country isn’t missing out on opportunities per se, but on the “opportunity of speculation”.

“This is the benefit of not having cryptocurrencies. Because everyone will just focus on the technology and the real utility,” he concluded.