An official at China’s central bank recently revealed the central bank’s readiness to launch the country’s central bank digital currency (CBDC) according to a report by Shanghai Securities News on August 10, 2019. The CBDC would be issued by the central and commercial banks.
Centralized Digital Currency Could Launch Soon
Following a five-year research by China’s central bank, the People’s Bank of China (PBoC) via the Digital Monetary Research Group, to look into the prospects of launching a central bank digital currency (CBDC), the apex bank seems to have all things in place and is set to launch its CBDC.
Speaking at the China Finance 40 Forum, deputy director of the People’s Bank of China (PBoC) Payment and Settlement Division, Mu Changchun revealed that the CBDC would operate a two-tier system, with the central bank and the commercial banks issuing the digital currency to the public.
According to the PBoC official:
“Summary down, the People’s Bank of China is the upper level and the commercial banks are the second level. This dual delivery system is suitable for our national conditions. It can use existing resources to mobilize the enthusiasm of commercial banks and smoothly improve the acceptance of digital currency.”
Initially, the research group developed an original CBDC model completely reliant on blockchain technology. However, Mu Changchun stated that a digital currency relying only on blockchain technology would not work in a country as big as China.
The central bank senior official further explained the benefits of operating a two-tier system for the CBDC. One of them was that given China’s size and population, a two-tier system would effectively encourage public adoption of the digital currency and make it more accessible.
Also, the system would greatly reduce risk, prevent “financial disintermediation,” and leverage on the potential and resources of commercial banks.
Furthermore, the existing monetary regulations, including anti-money laundering (AML), fiat management, and counter-terrorism financing, apply to the CBDC. The PBoC executive added that it is important that the centralized digital currency be highly scalable, acceptable for retail use, and possess high concurrency performance.
PBoC Racing to Launch Ahead of Libra Cryptocurrency
The Chinese central bank seeks to track monetary transactions with its proposed centralized digital currency. Retail businesses and consumers who need to exchange the yuan for the CBDC would have to download a mobile wallet. The digital currency can be used for different payments purposes.
It also seems like the government is trying to accelerate its plans in light of the announcement by Facebook to launch the Libra cryptocurrency.
Sun Tianqi, an official of the State Administration of Foreign Exchange, at the China Finance 40 Forum made a statement concerning Facebook’s Libra, saying:
“Libra must be seen as a foreign currency and be put under China’s framework of forex management.”
In July 2019, the PBoC revealed that it needed more information concerning Facebook’s Libra. According to the Chinese apex bank, the project was yet to address issues such as foreign exchange risk, monetary policy, KYC, and nature of decentralization.
A Change of Heart Perhaps?
China has maintained a negative perspective regarding cryptocurrency, following its crypto-related activities including a ban on ICOs in 2017, and cryptocurrency exchanges. In April 2019, the Asian country proposed a blanket ban on bitcoin mining.
However, BTCManager recently reported that there was a possibility that China could legitimize bitcoin, following an expository publication by the Bank of China, informing citizens on the usages, disadvantages, and benefits of bitcoin.