The China Financial Training Center recently held the second installment of its “Jinpei Classroom” lecture series, focusing on central bank digital currency (CBDC) research and development. The event, which took place on September 5, brought together over 100 officials from the training center and participants from the People's Bank of China (PBC) branch managers’ advanced study program on financial reform and innovation. This collaborative learning format exemplifies a modern, shared approach to financial education and policy dissemination.
Led by Yao Qian, Director of the PBC Digital Currency Research Institute, the session provided an in-depth exploration of China’s strategic approach to digital currency. With strong institutional support from top leadership, the country has made significant progress in both theoretical and practical aspects of CBDC development. The lecture not only enhanced attendees’ understanding but also highlighted the broader implications for monetary policy, financial inclusion, and technological innovation.
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Core Concepts Behind China’s Central Bank Digital Currency
At the heart of China’s digital currency initiative is a balanced framework that integrates public authority with private sector efficiency. According to Yao Qian, the fundamental design principle for China’s legal tender digital currency emphasizes central bank leadership while maintaining the existing cash circulation system. Unlike decentralized cryptocurrencies such as Bitcoin, the PBC’s digital currency is a sovereign-backed, encrypted digital representation of the renminbi (RMB), issued and guaranteed by the central bank.
This hybrid model ensures stability and trust while enabling faster, more efficient transactions. A key objective is to gradually replace physical cash without disrupting the current financial infrastructure—a goal achieved through careful integration within the traditional two-tier monetary system.
The Two-Tier Operating Model: Why It Matters
China has adopted a two-tier operational structure for its digital currency: the central bank-to-commercial banks model. In this framework, the People's Bank of China issues digital currency to commercial banks, which then distribute it to the public. This approach offers several strategic advantages:
- Smooth transition: By leveraging existing banking networks, the rollout avoids systemic shocks to the financial ecosystem.
- Risk distribution: Commercial banks share responsibility for distribution and customer service, reducing operational burden on the central bank.
- Innovation incentives: Banks are motivated to develop new financial products and services around digital currency, enhancing user experience and adoption.
Yao Qian emphasized that this model supports gradual implementation while preserving financial stability—critical considerations for a large and diverse economy like China’s.
Architectural Framework: "One Currency, Two Libraries, Three Centers"
The technical architecture of China’s digital currency system is built around three core components:
One Currency
A digitally encrypted string representing a specific monetary value, issued and digitally signed by the PBC. This ensures authenticity, traceability, and legal tender status.
Two Libraries
- Central Bank Issuance Vault: Where digital currency is initially created and stored.
- Commercial Bank Custody Vault: Where banks hold digital currency before distributing it to users.
These vaults function similarly to physical cash reserves but operate in a secure digital environment with real-time monitoring capabilities.
Three Centers
- Authentication Center: Manages user and institutional identities, ensuring secure access and transaction verification.
- Registration Center: Tracks the full lifecycle of each digital currency unit—from creation and circulation to redemption and destruction.
- Big Data Analysis Center: Monitors transaction patterns for anti-money laundering (AML), regulatory compliance, and macroeconomic analysis.
This structure enables transparency, accountability, and effective oversight—key pillars of a modern digital monetary system.
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Blockchain Technology: A Tool, Not a Requirement
One of the most frequently asked questions during the lecture was whether blockchain underpins China’s digital currency. Director Yao clarified that while blockchain technology is one of several options, it is not the sole foundation of the system. The PBC maintains a technology-neutral stance, prioritizing performance, scalability, and security over any single technological paradigm.
This distinction is crucial: digital currency and blockchain are not synonymous. While blockchain offers benefits like decentralization and immutability, centralized systems can achieve higher throughput and better regulatory control—important factors for national monetary policy.
Frequently Asked Questions (FAQ)
Q: What is the main difference between China’s digital currency and cryptocurrencies like Bitcoin?
A: Unlike Bitcoin, which operates on a decentralized network without government backing, China’s digital currency is issued by the central bank, has legal tender status, and functions within a regulated two-tier system.
Q: Can individuals use digital currency directly from the central bank?
A: No. Under the current two-tier model, individuals access digital currency through commercial banks or licensed payment platforms, not directly from the PBC.
Q: Is the digital yuan fully traceable?
A: Yes. Transactions are recorded in the registration and big data centers for regulatory purposes, though privacy protections are built into user authentication protocols.
Q: Does the digital currency earn interest?
A: Currently, it does not. Like physical cash, the digital yuan serves as a medium of exchange rather than an interest-bearing asset.
Q: How does this affect traditional banking?
A: It enhances rather than replaces traditional banking. Banks play a vital role in distribution, customer service, and developing value-added services tied to digital currency.
Q: Will physical cash disappear?
A: Not in the near term. The goal is coexistence—digital currency complements cash, especially in urban areas, while cash remains available for those who need it.
Strategic Implications for Finance and Society
The development of a state-backed digital currency extends beyond technological advancement—it represents a shift in how money is issued, monitored, and used. For policymakers, it offers unprecedented visibility into economic activity, aiding in inflation control, tax compliance, and crisis response. For citizens and businesses, it promises faster payments, reduced transaction costs, and greater financial inclusion.
Moreover, as cross-border pilot programs expand, the digital yuan could play a growing role in international trade settlements, potentially increasing the RMB’s global influence.
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Conclusion
The second “Jinpei Classroom” lecture underscored the depth and foresight of China’s digital currency strategy. By combining rigorous research with practical implementation frameworks, the People's Bank of China is laying the groundwork for a modern, resilient monetary system. As education initiatives like this continue to spread knowledge across institutions, they foster greater alignment between policy makers, financial professionals, and technologists—ensuring that innovation serves both economic stability and societal progress.
With core keywords including central bank digital currency, digital yuan, two-tier model, PBC Digital Currency Research Institute, financial innovation, digital currency architecture, blockchain technology, and monetary policy, this evolving landscape remains one of the most significant developments in modern finance.