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Don’t hold your breath for China’s central-bank-backed digital currency, according to a new report from Binance Research.
The market analysis and research arm of the world’s leading exchange published its report this week on the proposed new digital legal tender. Its researchers ploughed through reams of documents and speeches in Chinese before presenting their analysis on the new currency.
The report said that the currency will be widely accessible, backed by the People’s Bank of China, and based partly on the “Money Flower” model, pioneered by the International Monetary Fund.
However, the researchers noted the lack of a clear technical roadmap. And a Binance spokesperson, who asked not to be named, later told Decrypt that, contrary to reports that the currency has been ready for a year and could launch as soon as November 11,“it may be difficult to launch the digital RMB in November based on existing information.”
China announced that it would accelerate the development of a digital currency in July, in response to Facebook’s plans to launch its cryptocurrency in 2020, and the perceived danger to China’s financial system.
But, according to the Binance spokesperson, the People’s Bank started to investigate issuing a crypto as early as 2014 and the project was given the formal stamp of approval only last month. That “means the network construction has just started after five years of research.”
The spokesperson further said that, far from accelerating progress, “for the past two years, pace has slowed, as the bank’s overriding priority has become government/enterprise debt issues.” And, since the current central bank governor, Yi Gang, took office on March 2018, he has only publicly mentioned the project once, “which indicates that he might not keen on the CBDC.”
But most notably, perhaps, the spokesperson told Decrypt that the proposed, native digital currency is not included in the Chinese government work report this year, “suggesting its potentially low priority.”
Per the spokesperson, “even if it is ready for launch soon, a testing period will be necessary, and there [are] no updates that the network is entering the testing phase.”
The documentation also suggests that China’s digital currency will be “a vast network which consists of both software and hardware,” said the spokesperson.
Binance analysts say the digital currency will be backed one-to-one by fiat reserves, and have a two-tier operating structure.
The first layer is designed to allow the central bank to issue and redeem the currency only via commercial banks. Operating in tandem, the second layer will allow individuals and businesses to access it through their domestic commercial banks, the report claims.
The network is aiming to achieve a speed of "at least 300,000 transactions per second,” according to the report—if true, a massive improvement on all of the blockchains in use today.
However, Binance Research said there was a lack of information about how the currency would negotiate cross-border payments, which will present it with a range of regulatory guidelines across nations.
The report also warned that, while the People’s Bank plans to improve monetary strategy, it could negatively impact financial privacy for all individuals using it; “Several questions remain such as the requirement to open wallets, whether a third party could freeze assets and under what specific circumstances,” the report. said.
Binance researchers said that they will be continuing to monitor the situation.