Digital Yuan Architect: ‘Imagine a CBDC on Ethereum or Diem’

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One of the chief architects of the Chinese digital yuan has discussed a possibility that the central bank digital currencies (CBDCs) could operate on networks such as Ethereum (ETH) or the yet-to-be-released Facebook-masterminded blockchain platform Diem (formerly Libra) as part of a two-tier operating system.

Yao Qian (chief science and technology supervision bureau at China Securities Regulatory Commission, CSRC) made these comments. He is also the former head of central People’s Bank of China’s digital currency division. According to Sina and Chain News his recent comments were made at the 2021 International Finance Forum.

Yao was quoted saying:

Imagine if the digital dollar or the digital yen could be operated directly on blockchain networks like Ethereum and Diem. The central bank could thus directly supply the CBDC to customers through their Blockchain-as-a-Service systems without the need for a broker.”

He discussed operational architecture issues that could impact CBDCs, such as the digital yuan. He also claimed that more countries are moving to two-tier models for digital currencies. He also noted that the digital yuan is two-tiered in its nature and could work in the same manner.

Two-tier CBDC models envision a central issuing bank (a central bank), distributing tokens through commercial banks. These intermediaries act as intermediaries. Yao’s comments suggest that he thinks central banks could use two issuing models. One that relies on intermediaries and one that bypasses commercial banks.

Yao stated that CBDCs could operate as both a single-tier and two-tier currency simultaneously with a flexible nature. Yao stated that customers would benefit from having the option to choose between a single-tier option (which would see tokens being distributed directly at end-users) and a two-tier option (which would see tokens being distributed to them directly).

He stated:

“I believe that single-tier CBDC models as well as two-tier CBDC models are not alternatives. The two appear to work together and users can choose between them, just like buses and taxis.

Yao, who resigned from his position at the PBoC this year, was part of the original team which began work on the digital yuan in 2014. During his speech, he claimed that he was speaking only in his personal capacity and that his views did not reflect those of either the CSRC nor the PBoC.

He also rejected an accusation by Jerome Powell, Federal Reserve Chairman, that tokens such as the digital yuan would permit banks like the PBoC “to see every payment that’s been used.”

Yao said:

“Helping government see all transactions in real time was not the intention of the PBoC.” In the face of digitalization, central banks must assist fiat money to innovate.”

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