Innovation from above? CBDC (Central Bank Digital Currency) and the impact on the Fintech ecosystem. [Event recap]

Event Recap

China has announced that it will test the first Central Bank Digital Currency (CBDC) in four pilot zones: Chengdu, Shenzhen, Suzhou, Xiong ‘an. This unique experiment will be rolled out in partnership with 4 biggest banks in China, as well as home-grown and foreign businesses.

Start-up Grind Chengdu/Paris talked about the ground-breaking event with an expert in digital currency and executive director at Institute for Future at University of Nicosia Prof. George Giaglis. 


创业磨坊成都和巴黎荣幸地邀请到了David Baverez先生和我们展开了一场在线对话,讨论了欧洲和中国的互补性。


How did Prof Giaglis become interested Digital Currency?

He first learned about Bitcoin in Athens in 2008 and was fascinated with the technology’s potential. He saw an opportunity to transform the money system, an infrastructure that had remained resistant to digitalisation. Later, he helped launch the first degree in digital currency, and was behind the creation of the Institute for Future. 

Motivation to start online-course on Digital Currency before it was mainstream?

When the digital currencies appeared very few people knew about them. Those who did, were very sceptical. Prof. Giaglis saw the technology that can change the paradigm by creating the money that can be programmed to create value (e.g. determine when and how to be invested). When countries start to issue digital currencies with the whole weight of trust and legitimacy, we will enter a whole new world. The mission of the online courses was to prepare people for the change.

In a nutshell, what is Central Bank Digital Currency?

The real question is: What’s important about them? After all, the CBDC is just a currency that is digitally issued by a Central Bank (CB). Now, the only money issued by CBs are physical banknotes. Public can’t have electronic deposits at a CB. Only financial institutions do. The CBDC will be the digital money issued by CBs and used by public for transactions. It will be denominated in the national currency (RMB in China’s case). 10 digital RMB of will equal 10 regular RMB. However, CBDC will have features, such as smart contracts, programmability, ability to conduct nano-payments etc. For the ordinary user it won’t seem different from the digital debit money currently provided by regular banks.  

Are CBDC currencies the same as cryptocurrencies?

In theory, there is no connection between them. You could implement CBDC without blockchain. Most likely the majority of CBDCs won’t be crypto, because they are centrally issued by CBs. This way, there is no need for decentralised blockchain technology.  However, some features of cryptocurrencies that require blockchain might appear in the CBDCs. “Smart contracts” is one of them. Another reason for governments to opt for the blockchain-based CBDC is the security it provides.

Will all CBDCs be similar/equal? What countries are experimenting with CBDCs?


No, CBDCs can be designed very differently. What features to include is the current challenge for many countries. At the moment every major Central Bank in the world is looking at CBDCs. However, little information is public. China and Sweden are the only countries in the “Pilot” stage. There are other CBs that have launched the initiative, such as US Fed and the Bank of England. The British approach is unique. Britain plans to issue only tokens, having Payment Interface Providers (PIP) build all the services on top of its CBDC. There is also a private player – Facebook with its Libra. Some Commercial Banks are looking into issuing Private Digital Currency backed by the money of the Central Bank. 

What disruptions are to be expected from the introduction of CBDC?

It depends on the implementation. There are several potential disruptions:

1)      Commercial banks will lose the intermediary position, as CBDCs are directly connected to users.

2)      Payments and fin tech industry will see a boom as apps and software will be needed to facilitate CBDCs and their transactions.

3)      Increase in compliance and transparency as money use and identity will become digital.

4)      Machine to machine and human to machine commerce. Artificial intelligence will become an actor of economical transactions. For example, a self-driving car would not only drive itself but also perform the economic activities (e.g. pricing, bidding against the competition).

Are there opportunities for entrepreneurs from outside of China to benefit from CBDC?


Yes. There will be a huge space for contributing to the creation of the infrastructure for the CBDCs. There is a whole new system that emerges and has to be facilitated. There will be opportunity to create different types of application for the CBs and users of the digital currency. 

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