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What will become of RMB once it goes digital?
The Chinese government's plan to develop a state backed blockchain-based digital currency could present numerous advantages especially in terms of data management, and security

November 29, 2019 | David Smith

China has made no secret of its interest in developing a state-backed blockchain-based digital currency. The initiative was launched by the People’s Bank of China (PBOC) in 2014 and the project has already generated over 78 digital currency patents since then. Even though there have been speculations, but no specific announcement on when the Renminbi (RMB) would go digital, it is safe to assume that it would happen soon.

China is not the only country to think of digitising fiat currency or introducing a Central Bank Digital Currency (CBDC). Sweden’s e-krona project and Canada’s CAD-COIN, among others, have also been widely discussed in this regard. Across the world, the future of money seems to be digital. In this article we explore various aspects of this future and its potential impact using digital RMB as an example.

Design and Structure

The bank of international settlements has provided an analysis with implementation considerations and impact of CBDC’s, in general. Based on information available so far, the CBDC issued by PBOC seems to have considered this analysis.

In the proposed digital currency system planned by PBOC, the currency would be issued and controlled completely by the central bank. The currency issued by PBOC would be backed 1:1 by fiat reserves. The central reserves database would be accessible to commercial banks and the currency would be issued and redeemed by PBOC through these banks. Commercial banks can, in turn, distribute the currency to individuals and businesses. Individuals and the general public can use the digital RMB via a digital RMB wallet client that would be published and maintained by PBOC.

The digital RMB would be built on the “one coin, two repositories, and three centres” approach where: “one coin” is the CBDC or the digital RMB; “two repositories” are the issuance database at the central bank and commercial banks’ reserve databases; and “thr...

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