- The People's Bank of China (PBOC) has announced a plan to release its own central bank digital currency (CBDC) with an aim to increase the role of the Chinese Yuan on the world market and to combat money laundering. The new currency will be retail CBDC that Chinese can use in lieu of cash. It will be backed 1:1 by Renminbi fiat and managed by a two-tiered structured system. PBOC will issue and circulate the digital currency to commercial banks and other players in China's digital currency system (the first tier), enabling these commercial banks and other players to offer deposit and withdrawal services for digital currency to the general public (the second tier).
- Categorized as a digital currency, CBDC might sound like it is akin to bitcoin or other crypto-currencies. However, CBDC is different from these currencies in two important aspects. First, CBDC transactions may not be entirely supported by blockchain because China's central bank plans to use a mechanism that can handle a massive volume of transactions, which is better than the blockchain platform in general. Secondly, the management of CBDC supply will not be decentralized. One of the advantages of the two-tier management system is that the Chinese authorities will be able to protect the basic personal data rights of the general public.
- PBOC's digital currency project may be driven by two motives: to reduce the dominance of the US dollar and to combat money laundering. However, to meet these purposes, there are certain challenges to implementation. For example, to use CBDC to limit money laundering channels, CBDC must be widely used in lieu of cash and other e-wallet applications. Otherwise, money laundering can still be done through other channels such as Alipay.
- The Chinese central bank's CBDC is likely to be accepted by Chinese consumers and business operators, and it is expected to be widely used after its launch. This is because Chinese authorities have made good preparations regarding technological aspects and circulation of money. Moreover, changing consumer behavior has become conducive to the launch of a digital currency. For example, when compared to other international transaction channels currently available, cross-border transactions via CBDC system is better in terms of speed and cost efficiency. Such advantages will create an incentive for Chinese business operators to initiate transactions via CBDC with their trading partners in other countries. This will promote the use of the Chinese Yuan worldwide.
If Chinese people adopt CBDC as their mainstream currency, it will have an impact on many, including operators in Thailand who do business with Chinese customers and tourists. The operators trading with China will have to connect their system with the CBDC currency to maintain their competitiveness in terms of cost and speed of transaction. Therefore, these operators must ready themselves for the advent of CBDC.