Zhou Xiaochuan Highlights Key Considerations for China’s Central Bank Digital Currency
Zhou Xiaochuan, the former governor of China’s central bank, emphasized the importance of security, cost-effectiveness, and prevention of abuse in the development of China’s central bank digital currency (CBDC).
During a forum in Beijing, Zhou stated that security is a critical issue in finance, particularly in the realm of currency. He highlighted that as technology costs decrease and systems become more convenient, the cost of misuse also decreases.
Zhou further emphasized the need to prevent abuse, including combatting money laundering and arms trading facilitated by cryptocurrencies and stablecoins. This area requires focused prevention due to its association with military conflicts and drug trades involving substances like fentanyl.
E-CNY Development
Zhou explained that China will continue to operate the e-CNY in a two-tier system. The People’s Bank of China (PBOC) is responsible for issuance on the first layer, while commercial institutions such as banks, internet platform companies, and telecommunications operators form the second layer.
This design allows for the dynamic evolution of the digital currency by fostering competition among commercial institutions. It ensures improved service levels and encourages innovation, which is particularly important for a large nation like China.
Zhou also highlighted cross-border transactions as an important direction for CBDC exploration. He mentioned that it involves technology, systems, and policy orientation.
Hong Kong is actively testing the e-CNY for cross-border payments and has entered the second phase of technical testing to incorporate a local payment system.
Hot Take: Prioritizing Security and Prevention in CBDC Development
As China develops its central bank digital currency, it must prioritize security measures to mitigate potential risks. Zhou Xiaochuan’s emphasis on preventing abuse, combating money laundering, and addressing arms trading highlights the need for stringent measures in this evolving financial landscape.
Furthermore, the two-tier system adopted by China’s e-CNY allows for dynamic evolution and competition among commercial institutions. This approach fosters innovation and improved service levels, crucial for a nation of China’s scale.
With cross-border transactions being explored as a key direction for CBDCs, technology advancements, robust systems, and policy frameworks will play a pivotal role in ensuring seamless and secure international transactions.
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