Binance, the world’s largest cryptocurrency exchange, just published a report on China’s new Central Bank Digital Currency (CBDC). Binance claims that the currency will have a dual-tier system, both for redemption and issuance.
Binance states that the People’s Bank of China will “issue and redeem China’s CBDC” for the first part. For tier 2, Binance says that the Chinese commercial banks would be responsible for redistributing the currency to other market participants once they have received it. It is not clear if blockchain will be used for the second tier. Apparently, the PBoC is still not clear on its direction for cryptocurrency.
The PBoC appears to be keen on achieving financial inclusion. Binance says that the CBDC will allow citizens to send and receive money regardless of whether they have a bank account.
“Through digitalization of RMB, the PBoC aims at improving the effectiveness of its monetary policies and mapping out a better picture of all Chinese individuals and businesses.”
It is expected that the currency will be stablecoin and backed 1:1 by China’s Renminbi. In the end, it will likely have a high turnover just like fiat. The system will be capable of processing 300,000 transactions per minute. Another reason why blockchain is unlikely to be used is that it is not scalable enough with blockchain technology.