- The new system is expected to process 300,000 transactions per second.
- Retail payments, inter-banking clearing and cross-border payments are the main reason for the move.
Binance’s latest research report says that China’s digital currency system will likely replace all the coins and notes in circulation. The report observes that the PBOC’s central bank digital currency (CBDC) will be backed 1:1 by renminbi fiat. It will also implement a two-tiered structured system with the bank, commercial banks, and retailers.
The first layer will connect commercial banks with the PBOC for issuing currency and redemption. The second tier will connect these commercial banks with the greater retail market. Binance claims that PBOC’s system can enable fund transfers without having a bank account.
The report states:
“The end goal for the CBDC is to display a turnover rate as high as cash, while achieving ‘manageable anonymity. In other words, in the first-layer network of the CBDC, real-name institutions are expected to be registered while the transfer in the second-layer network would be anonymous from the perspective of users.”
The new system is expected to process around 300,000 transactions per second, which is not possible with the current blockchain technology. The company said that smart contract architecture has also been discussed. The PBOC’s CBDC aims to replace China’s notes and coins in circulation. It is not meant to replace funds within the central bank or money holding institutions. Binance said that the reasons for replacing notes in circulation with a CBDC were retail payments, interbank clearing, and cross-border payments.