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.

Security Token Offerings Deemed Illegal by Beijing’s Municipal Bureau of Finance

At a recent wealth management forum hosted by Beijing’s Municipal Bureau of Finance, chief Huo Xuewen has advised companies against holding security token offerings (STOs), citing that STO fund-raising activities are considered illegal in Beijing.

An STO is similar to an initial coin offering (ICO), in which crypto tokens are sold by a company to the public in order to raise funds. Security Token Offerings raise funds by selling crypto tokens backed by the assets or revenue of a given company. Investors can trade, sell or hold their purchased security tokens, while the company raises funds necessary to the success of their project. The security token is tied to a real and tradable asset, subject to federal trade regulations.

Huo Xuewen further noted that he

“will issue a risk warning to those who promote and issue STO tokens in Beijing. My advice is to only engage in such offerings when the government has legalized them.”

Particularly, the Chinese authorities have been taking measures against token fundraising since September 2017, when the People’s Bank of China (PBoC) categorically banned ICOs, and imposed that crypto exchanges cease operations.

Over the past several months, tons of blockchain companies – including some that already raised funds in ICOs – are planning their own STOs. The move towards STOs does grant more rights to holders, but it is concerning that a year after raising billions of dollars in ICOs, companies are now seeking even more funding.

Last month, the PBoC stated it would repress free distributions of crypto tokens called airdrops. Back in August, the finance department of China’s Guangzhou Development District issued a notice to local businesses, prohibiting them from hosting any crypto-related promotions or events.

Notably, Pan Gongsheng, a vice president at the PBoC, had declared in the summer that the central bank intended to hit back hard against ICO projects that had moved overseas yet continued to target investors in mainland China, citing that “any new financial product or phenomenon that is not authorized under the existing legal framework, we will crush them as soon as they dare to surface.”

Hong Kong Stock Exchange Proposes Regulatory System for Blockchain Companies and Cryptocurrencies

The Hong Kong Stock Exchange (HKEX) has recently suggested that fintech firms, including those focused on blockchain and cryptocurrency, are best regulated under the same existing financial regulations.

Published Oct. 18, the HKEX’s Chief China Economist’s Office and Innovation Lab conveyed their findings in a research report, where they primarily examined the potential of blockchain and AI within areas of finance, providing an overview of blockchain and possible use cases in trading, settlement and equities markets.

The exchange stock examined as well the need for regulators to keep up with the rapid progress of financial technologies. One potential issue raised, though is that the fast-changing nature of financial technology can potentially open up regulatory “loopholes.” As a result, it said, regulations need to be “continuously updated” to keep pace with technological change. For instance, emerging technologies such as blockchain, it says, could be “integrated in the areas of investment, trading, clearing and settlement.’’ Similarly, issuing digital assets on blockchain could be governed by an existing securities regulatory framework.

The HKEX pointed out that “despite the difference in Fintech regulations among countries, the principle of consistency generally applies, i.e. financial services with the same nature are subject to the same regulations under the existing legal framework, so as to maintain fair competition, ensure regulatory effectiveness and prevent regulatory arbitrage.”

The HKEX research report proposes that Hong Kong regulators build an effective regulatory technology (RegTech) system by including more use cases of AI and big data. The system would include a better, face recognition-enabled KYC process, sentiment monitoring, and identifying corporate relationships.

For crypto and blockchain startups, a working RegTech system would allow them to approach legalities and auditing faster than usual, thus being able to present and update their business papers, including “registration information, annual reports, notices and information on its shareholders/legal persons and connected companies,” online to seek approvals in a timely manner.

The research paper continued to argue that “there are now some business search engines (e.g. “Handshakes”) in the market which can help regulators analyze the nexus of commercial transactions and relationships in the financial market.’’ With the help of technology, the business search engines are able to analyze public information of listed issuers much faster and in greater depth, providing accurate connections between companies and discovering possible insider dealing. Respectively, this would be the primary application of big data in RegTech.

Chinese JD.com Announces Blockchain as a Service Platform

JD.com, the leading retailer and e-commerce provider in China, has unveiled through a blog post on their official website, a new blockchain platform, which would now allow users to build, own and operate their blockchain applications in order to enhance the transparency, security and the efficiency of their activities on the platform.

The newly launched platform, named JD Blockchain Open Platform, is actually the most recent expansion of JD’s Retail as a Service or RaaS. The platform has been developed so that it would allow users to easily build smart contracts on private and public networks. Moreover, the new system will allow companies keep track of activities such as transaction settlements, property assessments and product tracing, digital copyrights and authenticity documents. It has also been devised as a “one-click-deployment” thus becoming readily accessible to all users and facilitating the entire process.

Additionally, JD.com provides users with an app store, where software and various blockchain base layers and tools can be found, in order for the user to create and customize his own blockchain platform. This is especially favourable and beneficial to companies that do not possess the necessary capacity to develop their own blockchain solutions.

The first company to use and test out the JD Blockchain Open Platform by utilizing a traceable system for e-invoices, is none other than the China Pacific Insurance Company (CPIC). What it does is, it assigns a particular and unique blockchain ID to each invoice, thus making the process more efficient and enhancing the security governance of e-invoices.

Jian Pei, head of big data and smart supply Chain at JD.com, as well as Yanhong Pan, vice-president and chief financial officer at CPIC, have both commented on the success of the newly developed blockchain platform and prasied the efficiency of the e-invoices system:

‘’JD Blockchain Open Platform is a culmination of the expertise and experience in blockchain technology that we initially developed for our own operations, to provide more visibility to consumers. […]As we continue to open our technology and infrastructure up to other companies, we are pleased to have CIPC as our first blockchain platform customer.” – Jian Pei

“JD is an innovator in its field and we are confident its blockchain e-invoice system will create greater efficiency in our operations. [..] Blockchain technology is transforming the way companies do business, and we are pleased to have found a great partner in JD to guide and help us along the way.” – Yanhong Pan

JD.com is surely becoming a force to be reckoned with, as the company has developed a fair amount of blockchain based applications, but more so, it excels at utilizing them. Previously this year, the company introduced a blockchain and AI accelerator called AI Catapult, as well as various AI apps that had been developed in the US and China.

Users of the AI Catapult include a list of various international companies such as Bankorous, a Chinese fintech supplier, CanYa, an australian primarily based cryptocurrency company, Bluezelle, a Singapore based blockchain-powered databases service; Nuggets, a blockchain-based ID platform and payments platform operating in London and Devery, a blockchain system product verification protocol.

In 2017, JD launched another blockchain platform, that allows users to trace and monitor the source and processing of the products and food they procure. Presently, the company has applied the tracing system to more than 11000 SKUs (stock keeping units) and more than 400 brands that operate and use their retail services. JD will continue its work with certificate authorities and software companies, expanding the blockchain platform usage to local business as well as international ones.