Zhou Xiaochuan, the Governor of the People’s Bank of China until 2018, says that the digital yuan or eCNY has been incorrectly classed as a central bank digital currency (CBDC). Writing in the China Finance 40 Forum, Zhou said the digital currency is the liability of the major state-backed banks that issue it.
In Hong Kong, three commercial banks issue the physical notes in circulation but have to hold reserves at the Hong Kong Monetary Authority and the central bank issues a reserve certificate. Critically the banknotes issued in this way are a liability of the commercial banks, not the central bank. And the digital yuan uses a similar model.
It’s already known that the commercial banks will be responsible for the eCNY’s KYC, anti-money laundering and data privacy protection. But Zhou notes that “CBDC in the general sense considers these responsibilities to be a part of the role of the central bank”. However, to our knowledge, most CBDC models currently being explored are likely to delegate these roles.
Zhou explained that the reason for the two-tier system was “that a competition-based, multi-solution operating system, one that is dynamic and continuously evolving, would better accommodate China’s economic reality.”