PBoC completes 'top-level' development of digital currency

January 14, 2020 15:14
China is preparing to be the first country to roll out a digitized domestic currency, which will be akin to cryptocurrencies such as bitcoin. Photo: Reuters

The People’s Bank of China (PBoC) has revealed the latest developments in the country's pioneering efforts toward launching its own digital currency.

In a recent post on its WeChat account, the central bank said it has basically completed the "top-level" design, technology standard, functionality research and development, and sub-system testing for the development of its digital currency electronic payment (DCEP).

It also said it will “continue its solid study on the digital currency and keep monitoring the latest development of digital currency initiatives around the world”.

Back in 2016, the PBoC was reported to have established a research institute to study digital currency technology and implementation, with an aim to launch a digital version of the Chinese yuan to boost its use internationally.

Fan Yifei, the central bank's deputy governor, had told media that after the completion of the top-level design, the PBoC would select specific geographical regions for the pilot trial of the digital currency as part of the preparations toward market launch.

China wants to be the first country to roll out a digitized domestic currency, a development that is being closely watched by financial services players worldwide, after Facebook unveiled plans to develop its own digital currency called Libra in June last year.

The central bank will adopt a “two-tier approach” to launch its digital currency project: it will first issue the currency to commercial banks and other institutions, which will then distribute it to the general public.

Li Lihui, former president of the Bank of China, said at a seminar on Monday that he believes the blockchain technology, also known as distributed ledger technology (DLT), which underpins cryptocurrencies like bitcoin, should not be used to power the nation’s digital currency, citing scalability as a major weakness of the technology.

“If China is to launch its fiat digital currency soon, the scalability limitation and the transaction inefficiency of the current blockchain technology would render it unable to be used to meet the huge transaction demand of our nation’s digital currency, considering our massive retail market. Therefore, the PBoC should stay neutral towards the technology that underpins the digital currency, which will not be dependent on a sole technology platform,” said Li.

He added: “There should be a horse race approach on the technology used, with commercial banks and other institutions competing to develop different types of technology powering the digital currency [during the pilot trial period], and then the central bank will decide on the technology to be used depending on the market need and the technology functionality.”

According to Chinese financial news site Caijing, the PBoC will soon launch the first pilot test of its digital currency in Shenzhen, the nation’s tech hub, and Suzhou, among other aras.

To launch the test, the central bank has partnered with the "big four" state-owned commercial banks, namely, Bank of China (03988.HK, 601988.CN), China Construction Bank (00939.HK, 601939), Industrial and Commercial Bank of China (01398.HK, 601398.CN) and Agricultural Bank of China (01288.HK, 601288.CN) as well as the three state-run mobile operators – China Telecom (00728.HK), China Unicom (00762.HK, 600050.CN) and China Mobile (00941.HK).

Users and businesses will have to register digital wallets with these commercial banks to be able to use the digital currency. The banks will first obtain the digital currency from the PBoC by depositing yuan reserves in the central bank.

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