China’s central bank will launch a renminbi-denominated cryptocurrency as soon as November.
Forbes’ Michael del Castillo reported on August 27 that the national bank’s digital currency will be a permissioned blockchain controlled by the central bank, and is intended to replace the bills and coins used in daily transactions rather than the renminbi itself.
Citing researcher Paul Schulte, a former head of global strategy for China Construction Bank, and an anonymous source currently involved in the cryptocurrency project, del Castillo reported that the new digital asset will be launched through several of China’s largest banks, an association of other banks, and two of its largest technology companies, Alibaba and Tencent.
In launching the new cryptocurrency—referred to as DC/EP for Digital Currency/Electronic Payment—the People’s Bank of China (PBOC) has stolen a march on both Facebook and other central bankers who have been discussing the possibility of a cryptocurrency.
Leaving aside extensive criticism by U.S. and other governments, Facebook’s Libra project is at such an early stage that the vice-chairman of the Swiss central bank said, “it’s difficult to perform a full analysis (of the project) because the available documents are very vague and details are still missing,” Reuters reported on August 27.
And Bank of England Governor Mark Carney on August 23 suggested nothing more than the idea of a digital currency launched by a group of central banks as a way to fight the U.S. dollar’s dominance of global trade.
China, meanwhile, has had the DC/EP ready to launch for a year, according to a speech given on August 10 by an executive of the PBOC, Forbes reported.
“China is barreling forward on reforms and rolling out the cryptocurrency,” says Schulte, who now runs bank-focused Schulte Research. “It will be the first central bank to do so.”
In his speech, Mu Changchun, deputy director of the Paying Division of the People’s Bank of China, described the plan to have the digital currency bought by large, trusted institutions that distribute it as a “two-tier” system. It keeps control of monetary policy firmly in the central bank’s hands while distributing its risk, increases the likelihood of people using it, and should curb demand for bitcoin and other public cryptocurrencies, he added.
The system will also prevent smaller banks and other organizations from being cut out of the loop and encourage competition between the eight institutions that will distribute it, said Mu.
The DC/EP is able to handle an exceptionally large 300,000 transactions per second, according to Mu. Libra partner Visa, by contrast has a capacity of 65,000 transactions per second and doesn’t come close to using it all.
Mu suggested that the digital currency may also help China’s campaign to increase its economic influence worldwide with campaigns like the massive “belt and road” initiative.
“The central bank’s digital currency can be circulated as easily as cash,” Forbes quoted Mu as saying. “Which is conducive to the circulation and internationalization of the renminbi.”