The People's Bank of China could be the first central bank in the world to roll out its own cryptocurrency, director Huang Qifan from China Center for International Economic Exchanges said at a summit in Shanghai on Monday.
Huang’s comment comes after President Xi Jinping confirmed on October 25 that “blockchain plays an important role in technology and industrial transformation”.
These moves are a clear sign that China is pushing blockchain technology at the state level. Once the central bank’s cryptocurrency is launched, PBOC will be able to see exactly how money flows around the market.
It will strengthen central bank's control on currency and give more transparency and insights to regulators while recording every transaction. The issuance of a crytocurrency could improve supervision and curb the rise of shadow banking, which has been difficult for regulators to detect in China for years.
“China’s central bank has been studying cryptocurrency for a very long time,” one analyst who is working in PBOC's research institution told FinanceAsia. “But most of the research focus is on using blockchain for supervision.”
The central bank in China has consulted a number of institutions about the launch of cryptocurrencies. The upshot is China is striving to make the Renminbi more independent store of value by using blockchain and cryptocurrencies, and hence less buffetted by the vagaries of the US dollar. This is part of China's ongoing push to internationalise the Renminbi.
China would like to take a global lead in cryptocurrencies, the analyst said. The only headache for the PBOC is to avoid a depreciation of the Renminbi as people switch into the cryptocurrency as an easier way to transfer money overseas.
Huang said the PBOC would adopt a two-tier operation system for issuance of the cryptocurrency. The central bank will issue the cryptocurrency to banks or financial institutions and retail users would buy it from these institutions.
Compared to some well-known cryptocurrencies such as Bitcoin, PBOC’s cryptocurrency is more like a substitution for RMB. It is similar to stable cryptocurrency such as Facebook's Libra that pegs to some stable asset and trades at a stable price. But China thinks it can do better than Facebook.
“I don’t believe Facebook’s Libra is going to work,” Huang said at the summit. “For a sovereign state, the only cryptocurrency that works is the one that is backed by the government. The cryptocurrency has to link with sovereign credit, GDP, state revenues and gold reserves. Only this can halt overissuance.”
Boosted by Xi’s comments and the implication that the central bank is going to launch its own cryptocurrency, the price of Bitcoin jumped more than 16% since Friday to $9,415 on Monday, and the stock prices of a number of blockchain-related Chinese companies also increased over 10% on Monday.
However, both President Xi and Huang Qifan did not give a specific timeline for PBOC to launch this eye-catching cryptocurrency.
“I don't think China central bank will issue a cryptocurrency that fast,” the unnamed analyst from PBOC’s research institution said.