Why is China going to issue CBDC (Central Bank Digital Currency)?
Gihong Kim · The Journal of Internet Electronic Commerce Resarch · 2020
The purpose of this paper is to discuss the importance of CBDC(Central Bank Digital Currency) and, based on this understanding, to identify the main characteristics of China’s CBDC and finally to analyze the possibility of China’s CBDC to challenge the dominance of the US dollars. The discussion of this paper can be summarized as follows. First, central bank’s interest in a CBDC is resulted from 1) the rise(and subsequent fall) of Bitcoin and various crytocurrencies, 2) the entry of big tech firms into financial services, 3) the unexpected intense debate concerning Libra and other stable coins. Second, the main characteristics of China’s CBDC are summarized as follows: 1) the PBoC(People’s Bank of China) would like to adopt a two-tier system, where commercial banks has the basic function to relate the PBoC with consumers and businesses.; 2) It is assumed that DLT (Disributed Ledger Technology) would be adopted in the relationship between commercial banks and consumers and businesses(1st tier). Meanwhile, centralized control, instead of DLT, would be employed in the relationship between PBoC and commercial banks(2nd tier).; 3) It is also assumed that the first tier is a kind of ‘DLT-based token CBDC’, while the second tier, ‘centralized CBDC accounts.’ Third, problems for internationalization of the currency can be categorized into technical and political challenges. From the technical perspective, the possibility of internationalization of RMB(and CBDC) would be positive. Meanwhile, it would not be from the political one. Although there might be a limited success within the region of “One Belt, One Road” projects, the expected opposition from the US and the corresponding conflict between them would be a great problem to the success of internationalization of RMB. Thus, the final conclusion regarding the possibility of China’s CBDC to challenge the US dollars would not be optimistic. However, it might be better to keep in mind that China’s digital money is not yet launched, so that there still exits some possibility for CBDC to challenge US dollars more than ever.