China's central bank is considering its own digital currency, but it may not be built with blockchain technology, according a senior official.
In an op-ed article published by news outlet Yicai, Fan Yifei, vice governor of the People's Bank of China (PBoC), outlined the bank's direction on a potential central bank digital currency (CBDC).
Fan stated that that central bank's CBDC will inherently differ from decentralized tokens, while centralized management and issuance will remain a high-level priority.
"CBDC will still be the central bank's liability to the public. The nature of this liability will not change just because of the physical form of cash going digitalized. Therefore, we must ensure the central role of PBoC in issuing CBDC," Fan wrote, adding:
"A CBDC will also help curb the public's demand for private cryptocurrencies, which will strengthen the role of our sovereign currency."
The official further detailed that, unlike most cryptocurrencies, the CBDC might not operate via a peer-to-peer mechanism, which brings the key features of anonymity and untraceability. He explained that transactions using CBDC will be visible to the central bank, which would function as a third party to bring oversight on potential money laundering and illegal financing.
Fan's comments are the latest from the central bank that provide a glimpse into its possible direction on the CBDC after having established a research arm for the issue.
These comments are also in line with arguments made by Yao Qian, the director of PBoC's digital currency research lab. While the lab works on the R&D of blockchain-based cryptocurrencies, Yao said last year in a conference that development of CBDC should not be confined to the ideology of blockchain's decentralization and distributed ledger technology.
In yesterday's article, Fan further specified that the central bank will be cautious in introducing smart contracts – a feature of some blockchain platforms that can automate certain processes – to the CBDC system. He argued that since a CBDC will essentially be a substitute for the country's fiat currency, existing laws that apply to the yuan should also extend to the digital currency.
Currently, Chinese laws specify that Chinese yuan can only be used in pricing, circulation, payment and storage, thus so should the CBDC. Fan explained that adding smart contract functionality to the PBoC's digital currency might enable other functions such as automating of taxation and fund raising, which could be unlawful activities.
PBoC image via CoinDesk archive