Nations around the world are racing to become the first to implement a central national currency on the blockchain, a Central Bank Digital Currency (CBDC). CoinDesk recently reported that China has incorporated this directive into their next five-year plan, which was formulated in 2016.
Despite having shut down local cryptocurrency exchanges, Chinese officials have disclosed a significant national interest in blockchain alongside their published intent to integrate the technology into their national operations.
What are some benefits of having a Chinese CBDC?
China could readily make use of a CBDC to reduce counterfeit, fraud, money laundering, and keep a clearer paper trail for their national currency. Along with these benefits come a more transparent government, easier trail of assets between taxpayers, lower operating costs, increased efficiency, and general accountability for government and citizen.
CoinDesk also reports that China could be the first “major country” to launch a CBDC.
Technically, China is ready to launch the first CBDC, as the PBOC has set up a dedicated digital currency research group in 2014 to study both digital currency issuance and the business operation framework that would need to support the launch of such technology.
The Tsinghua Financial Review, released a study, stating that a digital currency was used to move funds between commercial banks, including Industrial and Commercial Bank of China, Bank of China, WeBank, Shanghai Pudong Development Bank and Bank of Hangzhou.
What are some negative potentials for a Chinese CBDC?
As with anything centralized, the public must have faith that the system will be developed and implemented appropriately. The trust required for centralized function is especially important when it comes to money, often the yield of a hard day’s work. If a CBDC is based on a non-immutable record, then the public will likely lose trust from the very beginning.
The immutable record also opens up consumers to consistent government oversight, an increasing source of friction in the U.S., especially with the increasing amount of AI-based video and metadata analysis. The sheer amount of data produced leaves consumer-side concerns about the security of their personal information and transaction data.
How can this influence adoption by other nations?
Other nations can learn from China in their willingness to explore newer technology, but must also be mindful to avoid any pitfalls that China may encounter. However, risks must be evaluated when settling on security precautions. Mt. Gox and Parity were both hacked for significant amounts of money (over $400 million and $30 million respectively.)
As global adoption of the technology increased, regulatory oversight and security standards will follow, though some security standards have followers from other industries, such as password requirements and encryption.
The United States, Venezuela, Estonia, and others do not appear far behind China in terms of progression. If current trends continue, it will not be long before the world exists on the blockchain, not just countries.