Public Bank of China is set to issue its own cryptocurrency which means getting a step closer for becoming one the first major central banks to do so. PBOC announced in January 2016 that it will have its own cryptocurrency soon.
China have embraced digital payment to such a large extent, that according to Financial Times “Chinese mobile payments were nearly 50 times greater than those in the US last year”. This new PBOC-backed cryptocurrency wouldn’t seem much different to existing payment methods such as Alipay or WeChat but for sellers getting digital payments directly from the buyer will assist in lowering transaction costs as the middleman is cut out of the process.
This new technology shift will have huge benefits for PBOC as well. Instead of relying on monthly surveys of businesses, or collations of spending from the statistics authority, using blockchain will allow to trace transactions and collect “real-time, complete and authentic” data to compile precise monetary indicators such as money supply growth. Policies could then be fine-tuned on a day-to-day, even hour-to-hour basis, giving an unprecedented level of precision to monetary management. The central bank will have unprecedented knowledge of how the economy runs.
A PBOC research paper last year outlined how digital money could work:
- The PBOC creates cryptocurrency and transfers it to commercial banks when more liquidity is needed
- Consumers would top up digital currency from modified automated teller machines or from bank tellers and store it in a crypto wallet on their mobile phone or other device
- For purchases, consumers wire from their person wallet to the merchant’s account
- The merchant deposits the cryptocurrency into their commercial bank account
- The cryptocurrency would be part of the overall money supply, replacing part of the outstanding paper tender, a separate paper published in the central bank’s magazine said in September.
Cryptocurrency like bitcoins didn’t get support as their legit adoption could have benefits so significant that centralized exchanges would not be able to compete. I think it’s a great move by PBOC which will surely have positive impacts on consumers and the government, curbing out the disadvantages of involving middle-man in transaction systems, and may also set examples for other nations to follow.
PBOC- Cryptocurrency
References:
https://www.ft.com/content/00585722-ef42-11e6-930f-061b01e23655