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Former head of the People’s Bank of China, Zhou Xiaochuan, stated at a forum in Beijing that China’s central bank digital currency (CBDC) development and testing process should prioritize security.
Focusing on Cryptocurrencies and Stablecoins
Zhou Xiaochuan highlighted the importance of security, low costs, and prevention of misuse in the development of CBDCs. He mentioned that security is always a critical issue in financial systems, especially in the currency sector, and stated, “As technology costs decrease and systems become more usable, the cost of misuse also decreases.”
When discussing the prevention of misuse, he explained that it includes issues such as money laundering and arms trade. Xiaochuan also emphasized that such misuse is facilitated through cryptocurrencies and stablecoins, making it an area that needs to be blocked.
Development of the Digital Chinese Yuan
The People’s Bank of China has been testing the digital Chinese yuan (e-CNY) for a long time and launched a pilot application in early 2022. Since the start of e-CNY pilots towards the end of 2019, the People’s Bank of China has expanded e-CNY trials to at least 26 different locations, including 17 city-level regions such as Beijing, Shanghai, Shenzhen, and Suzhou.
Xiaochuan emphasized the need to continue using a two-tier system when operating e-CNY. The first tier includes the People’s Bank of China, while the second tier includes commercial banks, internet platform companies, and telecommunications operators.
Xiaochuan stated that this design supports the development of digital currency and encourages innovation through competition. He also highlighted the importance of cross-border transactions for CBDCs and mentioned that it involves technology, systems, and policy guidance. Hong Kong is currently testing e-CNY for cross-border payments, and it was recently announced that the second phase of technical testing has begun.
