A recent statement by Mu Changchun, the head of China’s Central Bank Digital Currency Research Institute claims that China’s digital currency will lead to strong competition among commercial banks. Institutions will compete to provide the best services using digital currencies.
Two-Tier Approach With Digital Yuan – Mu Changchun
China’s is the first of nations to roll out a digitized domestic currency and is being heavily scrutinized by regulators and finance moguls alike. Similar to Facebook’s controversial project Libra the Digital Currency Electronic Payment (DCEP) project will be powered partially by blockchain technology. Mu Changchun said that the People’s Bank of China will be adopting a two-tier approach with the project. The latter will be issuing the currency to the commercial banks. Subsequently, they will resend it to the general public. While the whole process takes its time and unfolds itself, the banks will continue to compete and offer the best of services.
“During the research period, and also the issuance period there will be a horse race approach,”
He further said,
“The front runner will take the whole market – who is more efficient, who can provide a better service to the public – they can survive in the future.”
He also commented that while the Central bank was “technology-neutral”, the technology of the latter will be subsequently adopted by other parties. As a matter of fact, DCEP has been designed to substitute existing coins and paper money. This implies that currency holders will not receive any interest payments. Thus, there will be no inflation or any ill-effects on the monetary policy.
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