China’s Digital Currency Will Be a Two-Tier​ System Replasing Cash, Says Binance

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by Janis Rijnieks · 3 min read
China’s Digital Currency Will Be a Two-Tier​ System Replasing Cash, Says Binance
Photo: BriYYZ / Flickr

Binance has come up with a detailed research report about the new People’s Bank of China (PBoC) Central Bank Digital Currency (CBDC). The research reveals that the new currency will be a two-tiered system and is aimed at replacing cash.

Binance Research, which is the analysis and data research arm at Binance, recently came out with a very detailed research about the PBoC‘s Central Bank Digital Currency. 

The extensive research overlooks the main features and technology behind the digital currency. In general, the research claims that the new CBDC will be a two-tiered system which will most likely replace all notes and coins that are into circulation. The PBoC’s CBDC will be backed 1:1 by renminbi fiat. The two-tiered system will most likely consist of the Bank (PBoC) under which in the first tier would be commercial banks, and under the second tier would be Individuals and Businesses. 

To put it more vividly – the PBoC will be connected to Commercial banks with the help of Tier 1 for currency issuance and redemption. Then the commercial banks will be connected with the retail market with the help of Tier 2. However, PBoC hasn’t yet released the technical roadmap for their new CBDC, so some details could differ.

Also, the bank hasn’t answered whether the CBDC is going to be on a blockchain at all. Moreover, according to Binance Research, the new system by PBoC could possibly be used without the need for a bank account.

“Unlike “tight coupling”, the Chinese CBDC would be transferable between two parties, without the need for a bank account, unlike how traditional payments or fund transfers work in most countries.”

Also, Binance points out that the CBDC might even seem anonymous “from the perspective of users” just like cash, but with a chance to manage it:

“The end goal for the CBDC is to display a turnover rate as high as cash while achieving “manageable anonymity”. In other words, in the first-layer network of the CBDC, real-name institutions are expected to be registered while the transfer in the second-layer network would be anonymous from the perspective of users. Officials from the PBoC believe that this would benefit “both the RMB’s circulation and internationalization.” 

With the help of this two-tiered system, the PBoC could potentially process as much as 300,000 transactions per second which currently is not possible with blockchain technology. However, Binance believes that this is done with the “’off-chain relay, on-chain settlement’ mechanism or through other scaling improvements such as sharding or side-chains.”

Also, because of various reasons, the PBoC believes that this CBDC could replace cash or in other words – M0 money supply, which is referred to the notes and coins which are in the circulation, not the funds that are within the Central Bank or money holding institutions because “have already been digitized”.

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Janis Rijnieks

Janis is a cryptocurrency enthusiast and a bitcoin adherent. He has a background in video production, but for the past couple of years, he is a full-time crypto researcher and writer. He has a good understanding of multiple cryptocurrencies and loves to cover daily news. He considers himself a semi-bitcoin maximalist but always is open to any kind of new ideas that could be put on the blockchain. In his free time, he likes skateboarding and cars.

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