This article from Forbes suggests that China’s tight alignment and coordination between technology providers, financial institutions, and the state may help it bring a Central Bank Digital Currency (CBDC) implementation to market faster than expected. The author argues that a two-tier deployment model for CBDC is needed to preserve the commercial banks ability to manage circulation and that the U.S. should do the same.
Here’s a brief excerpt from the article:
“To take one example, consider the issue of the relationship between central bank money and commercial bank money. Yao Qian, from the PBOC technology department wrote on the subject in 2017, saying that to “offset the shock” to commercial banks that would come from introducing an independent digital currency system (and to protect the investment made by commercial banks on infrastructure), it would be possible to “incorporate digital currency wallet attributes into the existing commercial bank account system” so that electronic currency and digital currency are managed under the same account.
This rationale is clear and, well, rational. The Chinese central bank wants the efficiencies that come from having a digital currency but also understands the implications of removing the privilege of money creation from the commercial banks. You can see why this is a potential problem for a digital currency created by the central bank, even if it is now technologically feasible for them to do so. If commercial banks lose both deposits and the privilege of creating money, then their functionality and role in the economy is much reduced. Whether you think that is a good idea or not, you must agreed it’s a big step to take.
Overview by Tim Sloane, VP, Payments Innovation at Mercator Advisory Group
