China Close to Launching Its Own Digital Currency

China’s central bank – People’s Bank of China (PBoC) – has announced that is nearly ready to issue its own sovereign digital currency, according to a senior official.

Mu Changchun, deputy director of the People’s Bank of China’s payments department, has revealed that the bank’s virtual currency was “almost ready” for release. The news was announced by Mu at the China Finance 40 Forum over the weekend.

According to the news report, researchers have successfully developed a prototype that adopts blockchain architecture after five years of research and it is “close to being out.” However, details about the launch have yet to be known.

China’s central bank will reportedly launch its digital token through a two-tier system, with PBoC on an upper level and commercial banks on a secondary level as legitimate issuers.

Mu further explained that issuing a digital currency using a pure blockchain architecture would be difficult to achieve in a country as big as China due to the fact that retailers require high concurrency performance. The bank said it wouldn’t rely on blockchain exclusively, and would instead maintain a more neutral stance on which technology it decides to use.

According to Mu, this will improve accessibility, enhance adoption rates amongst the public as well as promote innovation amongst commercial entities. In addition to that, the digital currency is designed to be suitable for small-scale retail high-frequency business scenarios.

Mu has stressed that the institution’s aim is for the digital currency to replace M0, or cash in circulation, rather than M2, which would generate credit and impact monetary policy. The digital currency would also support the Yuan’s circulation and internationalization, he said.

According to patents registered by the PBoC, consumers as well as businesses would download a mobile wallet and exchange their yuan for the digital money, which they could use to make and receive payments. It is further indicated the wallet would store a digital currency issued by the central bank or any authorized central entity that is encrypted like a cryptocurrency with private keys, offers multi-signature security and is held by users in a decentralized way.

Currently, there are 52 patents filed under the name of the Digital Currency Research Lab of the PBoC, with the latest published in October 9th 2018, having been submitted on March 26th 2018.

Meanwhile, the news comes as global central bankers take a skeptical view on Facebook’s cryptocurrency project – Libra. Earlier in July, former governor of the PBoC Zhou Xiaochuan claimed that Libra poses a threat to payments systems and national currencies and he believed it should come under central bank oversight to prevent potential foreign exchange risks and protect the authority of monetary policy.