China’s planned digital fiat currency is nearly ready for release after five years of research and development, a senior official at the central bank said (in Chinese) at a forum on Saturday in Beijing without confirming a timeframe.
Why it matters: The People‘s Bank of China (PBOC) aims to steal a march on global counterparts by accelerating the development of its national digital currency.
- The central bank has been researching and developing a digital currency since 2014, though specific details remain scant.
- The government’s fast-tracking of the national digital currency was reportedly prompted by fears that the emergence of cryptocurrency projects like Facebook’s Libra will bring disruption to its economy.
“As one can imagine, to issue digital fiat currency in a country as big as China, the employment of pure blockchain architecture cannot fulfill the throughput required for retail usage. Eventually, we decided that, at the level of the central bank, we should remain technology-neutral and not preset a technology roadmap, meaning not relying on a specific technology.”
—Mu Changchun, the deputy chief of central bank’s payment and settlement
Details: Mu Changchun said the currency would not rely entirely purely on blockchain architecture, in a speech at the China Finance 40 Forum held by the PBOC on Saturday.
- Mu said the country would instead employ a two-tier structure, with the central bank on top and commercial banks below, for the digital fiat currency, which he referred to as the digital currency/electronic payment (DC/EP) system.
- The DC/EP will serve as a replacement for M0 (money issued directly by the central bank). It will flow easily like cash and will aid the yuan’s internationalization, he said.
- The PBOC will also implement real-name verification as well as measures to counter illegal activities such as money laundering, terrorism financing, and tax evasion.
- The two-tier architecture is meant to offload some of the risks from the PBOC.
- The central bank insists that the DC/EP will adopt a centralized management model.
Context: Despite its hard stance against cryptocurrency, the central bank has been high-profile about the development of its digital currency plans, which is in stark contrast to its previous tight-lipped attitude.
- At a teleconference held earlier this month, the central bank outlined eight key areas of work for digital currency development.
- Cryptocurrency activities are largely banned inside of China, including trading and financing through initial coin offerings. However, issuing a “digitalized yuan” would give it more control over its currency.