Central bank digital currencies (CBDCs) are set to become more “smart,” according to the former head of the People’s Bank of China’s (PBoC) digital currency initiative. CBDCs could one day operate on blockchain networks like Ethereum, according to the former head of the PBoC’s digital currency initiative.
According to Sina Finance, Yao Qian, the director of the China Securities Regulatory Commission’s Science and Technology Supervision Bureau, said over the weekend that CBDCs should not try to be merely a digital representation of real currency, but should also have smart contract capability.
Smart contracts are bits of blockchain code that execute automatically when specific criteria are satisfied, and they may be used to supplement or replace formal contracts.
However, Yao said at the International Finance Forum 2021 Spring Conference in Beijing that the frequency of security problems caused by smart contract flaws illustrates that the technology is still in its infancy. He also expressed worries about the legal legality of digital contracts.
As a result, central banks should proceed with caution, starting with simple smart contracts and gradually increasing their complexity as security and legality improve.
Yao oversaw the PBoC’s digital currency research lab from its establishment until his departure in 2018, when he joined the China Securities Regulatory Commission. Many of the central bank’s patent filings pertaining to CBDC technology include him as an inventor or co-author.
Trials of the People’s Bank’s digital yuan have been conducted with commercial banks and payment companies. A CBDC, on the other hand, does not have to be account-based, according to Yao.
A digital yuan or digital dollar could theoretically sit on Ethereum’s network, or the Facebook-backed Diem’s network, using a “two-tier” model (formerly Libra). As a result, central banks would be able to supply CBDCs directly to consumers, without the need for middlemen.
“Layered operations can enable the central bank’s digital currency to better benefit groups without bank accounts and achieve financial inclusion,” he said.