. Blockchain/ DLT not necessary to construct CBDC, according to China’s Central bank and Bank of England.
. CBDCs are essential to make a better financial system and to boost economic growth.
.With CBDCs, the economy can transform into a digital economy; i.e., it will be based on digital and computing technologies.
With the origin of cryptocurrencies, the fear in the banking system also has on the surge. Due to the time demand, most of the major banks have started to embrace the new technologies and their implementation in their financial systems, to maintain the monetary and financial stability, which seems to go out from their hands because of digital currencies.
The concept of Central Bank Digital Currency (CBDC) has started to prevail in a few countries to strengthen the future global payment field.
To save themselves from the impending change which has started to transpire in the existing status quo, China and the UK are not behind to incorporate the notion of CBDC. However, the model of CBDC’s vary from country to country as per their regulatory concerns. Also, CBDC’s are centralized, not like virtual currencies and cryptocurrencies.
China and the UK are consistently publishing their interest in the CBDC and, at times, have announced their development plans through various media portals.
Difference B/w China & BoE CBDC
According to the report, published by Chinese blockchain-focused research and services firm InterChain Pulse, both BoE and PBOC projects of CBDCs are vary to each other in their design.
The 57-page report (discussion paper), released by Bank of England (BoE) in March, indicates that the design of BOE is such that it can be used in everyday transactions (in retail markets), and it would also serve as a store of value. The British CBDC would be denominated in pounds sterling.
The parliament of Great Britain would issue BoE’s CBDC. However, the issuance process of China’s CBDC is the hands of the PBOC (People’s Bank of China)
Moreover, China is working on the digitization of its national currency, the yuan, while Great Britain is planning to create a competitive payment system.
Reportedly, there is a difference in the structure of BOE & PBOC CBDCs.
Double-layer structure vs. single-layer structure
“China’s DC / EP uses a two-tiered framework, with central banks and commercial banks, respectively account-based and wallet-based. Users also need to open an account through an operating agency such as a commercial bank or a third-party payment company.”
To encourage innovation, the Bank of England’s model shows that “the central bank does the core ledger, and then opens the API to connect to any accessing private institutions to develop applications and provide payment services to users. Users directly use CBDC, and the central bank does the bookkeeping. It is a single-layer structure.”
Application of Smart Contract & AML Laws in CBDC
In comparison with BoE’s CBDC, the Central Bank of China does not support the operations of smart contract application in its CBDC to ensure transactions. With BoE’s CBDC, people can trade with other digital currencies and other digital assets such as securities through smart contracts.
The BoE’s CBDC is likely to meet the terms of anti-money laundering (AML) provisions, the regulations on the financing of terrorism (CFT), and sanctions procedures, and it would be compatible with the General Data Protection Legislation (GDPR).
The PBoC’s CBDC would full fill the AML provisions and the bank’s own privacy rules to combat illegal activities.
Further, there is also a difference in the payment systems. China’s CBDC has an advanced payment system that supports dual offline. However, the Bank of England is single or dual offline isn’t revealed.
Similarity: The base of Central Bank Digital Currency would not be blockchain
The media publication cited the information that the Digital Currency Research Institute (Blockchain Research Group of POB- the Central Bank’s of China) issued:
“The decentralized nature of the blockchain conflicts with the central bank’s centralized management requirements. Payment services provided by the central bank cannot leave centralized account arrangements.”
“Central Bank’s digital currency is built on a centralized system, which conflicts with the decentralized nature of the blockchain. Therefore, it is currently not recommended to transform traditional payment systems based on the blockchain. “
What is CBDC
CBDC is an electronic form of central bank money that could be used by the households and businesses in the retail format to make payments and store value.
At present, in the conventional banking system public can hold money issued by the central of any country in the form of banknotes. Only banks and limited financial institutions can hold the electronic central bank money in the form of reserves.
The deliberations on the CBDC concept has first started by Bank of England in its Feb 2015 research agenda. After that, discussions and processes have gained considerable attraction in the deployment of CBDC.
The report notes, “In February this year, the Bank of Sweden started its experiment with CBDC, a project led by Accenture and built on Corda, the blockchain alliance R3. Prior to this, there were blockchain-based digital currencies issued by Uruguay, Venezuela, Ecuador, Tunisia, Senegal, and Iran. However, none of them became popular.”
CBDC Vs. Cryptocurrency
The Central bank digital currency is the digital form of fiat money, unlike virtual currency or cryptocurrency. The fiat money is the currency that is established as money by government regulatory authorities, monetary regulation, or law, which is a legal tender. The central bank issues the CBDC, which is centralized in its nature.
The theory of cryptocurrency is entirely different from CBDC due to its decentralized structure, and the existing banking system does not issue this.
Ten years ago, the primary cryptocurrency Bitcoin launched in 2009. It is a peer-to-peer electronic cash system introduced for financial freedom. The total supply of BTC is 21 million, as per its white paper designed by Satoshi Nakamoto (pseudonymous name).
The advent of BTC gave rise to the plethora of digital assets or altcoins. So far, there are 5266 cryptocurrencies constructed and in circulation on the cryptocurrency exchanges. The list of top 10 altcoins after BTC are ETH, XRP, Tether, BCH, BSV, LTC, EOS, BNB, XTZ.