By Alicia Maher
In an interview recently, the retired chairman of the People’s Bank of China decided to share his views on CBDCs and their position in the economic system, as well as his thoughts on the actual motive behind the country’s cryptocurrency clampdown. He argues that, whereas other countries employ a variety of approaches to integrating digital assets into their economic models, China will identify and adopt the most effective approach.
According to Zhou Xiaochuan, the most fundamental role of currency is to serve as a means of a transaction; otherwise, it is intrinsically ineffective in the old economic system. Whereas the currency may serve as a means of storing information, it must also help make payments. There will be various benefits to the economy as a result of the implementation of CBDCs, including lower costs, increased flexibility, and greater stability.
They are more functional and easy than conventional methods, and they are becoming increasingly popular. The modernization of the economy will also have a positive impact on businesses. A more efficient and simpler financial evaluation will be able to be established by small businesses.
Taking a jabs at the Chinese authorities’ latest decisions towards conventional cryptocurrency and mining, Zhou stated that the preservation of the strongest was the only way forward because the decentralized blockchain-based cryptocurrency is not the most suitable means of payment for conventional economic systems. According to all indications, the ex-head of China’s banking system was making reference to the scaling concerns that digital currencies currently face, which includes issues like charges, limited bandwidth, and the speed at which transactions are processed.
China Is Investigating Utilizing Blockchain To Issue CBDC
Deputies at the Chinese central bank’s Digital Currency Research Institute stated the central bank is researching adopting blockchain at the issuing tier (CBDC). China’s CBDC trials are advanced, but its virtual Yuan infrastructure is centralized. As with money, the central bank controls the fundamental layer using traditional means, while banks function as middlemen. For programmable cash, banks utilize decentralized applications.
The People’s Bank of China chose a traditional technology strategy for CBDC due to blockchain’s infancy, efficiency, and scalability. The company is studying a shared ledger for issuance, but Di Gang, the deputy director underlined that blockchain is not suitable for high concurrent speed or security. Di Gang mentioned numerous instances where blockchain for financial services has issues. However, he believes the future promise of study may be overestimated.
The main concern is scalability and efficiency. Sidechains, multichain designs, and processing tools can help. Compatibility between on-chain as well as off-data is also required. New privacy security options exist, but he argues they are limited. The tools are made up of encryption algorithms and zero-knowledge proofs learned by the participants.
To ensure security, smart contracts should be formalized and decentralized ids must be used. Most countries want financial oversight, but China wants it more. So it wants a ‘groundbreaking’ balance of data protection and regulatory control. The incompatibility of blockchain with existing technology is a concern for DI Gang. He wants greater work on blockchain protocols and compatibility.
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