Central bank digital currencies could use networks like Ethereum, says China’s former head of the digital yuan | Currency News | Financial and business news
A consumer uses a yuan digital red envelope in a mobile phone to purchase goods at a yuan digital cash register
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Yao Qian, the former head of China’s digital yuan team, said central bank digital currencies could use blockchain networks like Ethereum in the future, Sina Finance reported on Monday.
Speaking at the Spring 2021 International Finance Forum in Beijing, Yao said that CBDCs are likely to become “smarter” and could include features and attributes beyond physical currencies.
This could take the form of smart contracts, which are programs that document, control, and execute agreements or transactions, said Yao, who is currently director of the science and technology oversight bureau of China’s securities regulator. Terms and conditions are written in blockchain ledgers and contracts are self-executing, traceable and irreversible. They also exclude third parties and allow two parties to make agreements, even anonymously, which is what makes them so popular in the cryptosphere.
Smart contracts require blockchain networks like Ethereum, which could be used by central banks as an additional layer to their digital currencies. This would allow users to access CBDCs without a bank account, for example, Yao said. This would improve financial inclusion, which is widely recognized as one of the main goals of CBDCs.
So far, the digital yuan has been developed in collaboration with banks and other financial institutions. In the two-tier system, the e-yuan follows, the central bank distributes the digital currency to commercial banks, which are then responsible for passing it on to consumers. However, this means that users need to have an account or be registered with an existing bank or government agency in order to gain access to the new digital currency.
Trials with the digital yuan began across China earlier this year and are expected to be more widely introduced in the future. By 2022, China hopes to test its CBDC with international visitors and athletes at the Beijing Winter Olympics.
However, Yao also urged caution. Smart contracts can be vulnerable to security issues and their legality is still in question as the technology is new and has not yet been used by the general public, he said. According to his approach, central banks would therefore start with simple contracts and ensure that any kinks in the system are fixed before using blockchain technology for more complex transactions, Yao said.
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