After five years of research and development, China’s digital currency is about to be launched. Rumors suggest that eight companies and banks will have access to the digital currency for the first time.
Paul Schulte worked until 2012 as head of financial strategy at China Construction Bank, one of the four largest banks in China. He tells Forbes that the following companies and banks will initially gain access to the currency: Alibaba, Tencent, four Chinese banks and Union Pay, the largest credit card company in China.
Not like bitcoin
The digital currency of the central bank of China is a Central Bank Digital Currency. This is often also abbreviated as CBDC. You should not confuse this coin with cryptocurrencys such as bitcoin and ether. The Chinese authorities themselves also confirm this (note: just enable Google Translate).
The CBDC works with a kind of blockchain, but with a closed system. For example, you must verify your identity to use the system. Residents of China can exchange the currency at commercial institutions.
However, you should not underestimate China’s currency. The Chinese Volksbank (China’s central bank) has the ambition to become a digital world currency. With almost 1.4 billion potential users, that’s not a bad idea at all. In addition, China continues to closely follow the trends of digital currencies at home and abroad. An important detail is that the Chinese cryptocurrency is not designed to replace the digital renminbi, but to replace the physical banknotes and coins in circulation.
The power back to the bank
A digital currency sounds nice, but the goal of China is less idealistic. With the new currency, the Chinese Volksbank wants to regain power over payments and data.
Professor Hui of the University of Hong Kong explains this to TheBlockCrypto:
“Commercial banks have fallen behind in competition with mobile payment companies. Big data regarding payment and online behavior is now dominated by AliPay and WeChat Pay in China. I expect the Chinese Volksbank to develop their own platform with their new digital currency to store big data. “
In this sense, the new currency appears to be the Chinese version of Facebook’s Libra. By focusing on online mobile payments, China’s digital currency services such as AliPay and WeChat Pay can compete. Mu Changchun of the People’s Bank of China (PBOC) addresses the alleged competition: According to MU, Libra can handle 1,000 transactions per second. The Chinese currency is designed to handle 300,000 transactions per second. He also provided some context: at the height of Singles Day 2018, 92,771 transactions were done per second.
Mu Changchun says that this is only possible because the Chinese bank does not trust the currency on a fully open and accessible blockchain. They use a permitted blockchain that is centrally managed by the central bank. Instead of using an algorithm to limit the supply, such as bitcoin, Mu says that the central bank controls the supply itself.
Chinese digital currency can already be launched on 11 November
An anonymous source tells Forbes that the technology behind the Chinese cryptocurrency is ready since last year and that the cryptocurrency can already be launched on 11 November. This is the busiest day of the year for Chinese stores, namely Singles Day. You may know this day because Alibaba leaves no chance in their app to offer you discounts around that time.
The eight institutions are then responsible for distributing the Chinese digital renminbi. The source says they must ensure that 1.3 billion Chinese citizens and others who do business in renminbi switch to the cryptocurrency.
Ultimately, the Chinese central bank wants to make the digital currency available to American investors and American banks.
Is China’s new currency a threat to bitcoin? That’s not necessary. Bitcoin is decentralized and completely independent. There is no central entity that invents the rules for bitcoin. Millions of people are already using bitcoin, and the network is becoming increasingly secure. They will be interesting years anyway.