Recently, China’s ambition has become more and more growing or in Western countries, more threatening. Especially during COVID-19, its economy wants to grow without constraint under the shadow of the developed countries and its digital currency ambition wants to replace the US dollar dominance.
Let’s examine whether China’s CBDC is truly a digital cash and it will bring evolution into the world and put cryptos into an end.
According to their White Paper, E-CNY (China’s CBDC) is the digital version of fiat currency issued by the PBOC (their central bank) and operated by authorized operators (interesting that central bank authorized operators? Probably through commercial payment companies like Alipay from Alibaba).
It sounds pretty weird already because it seems their CBDC is only a digital version of cash and runs on the payment system.
Then, the White Paper further introducing legal tender status:
1. e-CNY issued by the central bank.
2. e-CNY operated by commercial banks
3. e-CNY substitutes physical cash but co-exist with physical cash
4. e-CNY serves domestic retail payment demands
5. Commercial banks and licensed non-bank payment institutions (Alipay likely) provide payment services to customers
In a nutshell, it seems e-CNY runs on top of a payment system that is directly issued by the Central Bank.
E-CNY runs on two tiers system, one over another which Central Bank system can overrun authority to banks and non-banks payment services.
It also got a wallet system to customers and receive or send currencies from.
However, it just sounds too familiar with similar systems, wait for it…. Bitcoin!
Bitcoin has two components: blockchain and wallet.
E-CNY developed a second layer blockchain to oversee the first layer blockchain and use a payment system to deliver currency into a wallet.
Of course, the White Paper did not explicitly mention how its wallet technology works and it called itself as White Paper?! (Satoshi Nakamoto invented the term through Bitcoin).
Also, Alipay was issuing its stablecoin (although they would not call that to avoid regulations) as digital payment services which backed up with certain assets to peg Yuan as 1:1 ratio. That eventually caught Chinese government attention and Alipay likely played a role to develop digital Yuan as restitution.
And that is why China bans all Bitcoin minings to avoid its currency outflow into Bitcoin. God knows what assets the Central Bank can back up since the US dollar is still the international settlement standard fiat currency unless the World suddenly changes its mind to use Yuan instead.
In conclusion here, Chinese CBDC is unlikely an Ultimate Financial Weapon because Bitcoin is watching and it is a copycat technology borrowed both from Bitcoin and likely Alipay.