When China announced in 2019 that it was working on its own national digital currency, there was widespread speculation about what role, if any, blockchain would play in the digital yuan, or e-CNY.
One reason for this is that news of the digital yuan came right after Facebook announced its own cryptocurrency called Libra, which was later renamed Diem and killed after selling its assets.
While the warning signs of the regulatory hurdles facing Facebook were clear from the start, it wasn’t clear three years ago that Facebook, one of the world’s largest technology companies, would fail so Beijing raised its e-CNY launch schedule.
Mu Changchun, head of the People’s Bank of China (PBOC) Digital Currency Research Institute, said that year the digital yuan was “not bitcoin and not for speculation.” While authorities have encouraged the use of blockchain for cross-border financing and settlements, cryptocurrencies such as bitcoin and central bank digital currencies (CBDCs) ) usually have very little in common.
Facebook’s Libra was a short-lived experiment in digital currencies that was eventually rebranded to Diem, but it failed to take off due to regulatory hurdles.
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China, as the only major economy to experiment with a national digital currency, is showing this fact, and other central banks are showing little interest in using blockchain to manage digital cash.
The President of the Central Bank criticizes digital currencies and supports the currencies of central banks
What makes CBDC different from cryptocurrency?
While the digital yuan has attracted widespread attention through comparisons with blockchain-based cryptocurrencies, the truth is that digital central bank currencies are almost as different from each other as bitcoin than cash in your bank account. This is because it is unlikely that the blockchain will be used to mint digital currencies. Of cryptocurrencies, other database technologies are more suitable for scaling across entire demographics.
When it was created in 2009, the blockchain ‘s biggest asset was that it was the first peer-to-peer currency that didn’t need a central authority or server.
Central bank digital currencies obviously don’t work that way, because they would be part of the larger money supply that the central bank manages directly.
“If we look at modern database technologies, they are good enough to secure transactions,” said Jan Ondros, associate dean of ESSEC Business School’s Asia Pacific campus in Singapore, who has studied mobile payment technologies for two decades.
And that’s what banks use. That’s what most of us use on a daily basis when we use any kind of app when you check your emails on Gmail, or when you type on Google Docs, all of this is stored in a centralized and secure way so it works.
