Banking News

China “likely to be the first” to issue central bank digital currency, says official

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Over the weekend, the three day Bund Financial Summit began in Shanghai. Lu Lei of the nation’s foreign exchange administration revealed at the forum that it is exploring blockchain, as we reported yesterday.

The VC of the China International Economic Exchange Center, Huang Qifan, also spoke at Bund, claiming that the country’s upcoming central bank digital currency (CBDC) will the globe’s first in circulation.

According to Sina Finance, he said “The People’s Bank of China has been studying [digital currency] for five or six years, and I think it has matured. [It] is likely to be the first central bank in the world to introduce digital currency.”

In a speech on the digitization of finance, Huang outlined the motivations and plans for the CBDC. “Prior to the launch of the RMB Cross-Border Payment System (CIPS), RMB cross-border liquidation was highly dependent on the US SWIFT system and CHIPS,” he explained.

“However, there are certain risks associated with a high degree of reliance on SWIFT and CHIPS systems. First of all, SWIFT and CHIPS are gradually becoming the financial instruments for the United States to exercise global hegemony and carry out long-arm jurisdiction,” Huang continued.

“Second, SWIFT is an outdated, inefficient, and costly payment system. Since its establishment 46 years ago, SWIFT has been slow to update, and its efficiency has been relatively low,” he said.

Indeed, many blockchain-based payment messaging services have been launched to address this. It is one of the motivations behind China’s CBDC, and “there is no future” for the outdated systems, said Huang.

Reports are varied on how blockchain is incorporated in the currency, with Beijing News stating its unlikely to be blockchain-based at all and the central bank’s Yi Gang claiming it will consider the technology.

But Huang stated: “At present, the digital currency (DCEP) launched by China’s central bank is a new encrypted electronic money system based on blockchain technology.”

He confirms that: “DCEP will adopt a two-tier operating system, that is, the People’s Bank will first convert DCEP to banks or other financial institutions, which will then be redeemed to the public.”

If the rumored issuing institutions are accurate, the DCEP will have a vast reach. As Huang stated earlier in his speech: “Mobile payments represented by Alipay and WeChat payment have covered 1.4 billion people… China’s electronic payment system has been leading the world.”

He added that the CBDC, a digital cash alternative, “is conducive to the circulation and internationalization of the RMB,” as we outlined earlier this month.

Huang concluded: “At the same time, DCEP can realize real-time collection of data such as currency creation, accounting, and flow, and provide a useful reference for the formulation of money and the formulation and implementation of monetary policy… The People’s Bank of China is likely to be the first central bank in the world to introduce digital currency.”

Huang and Lu’s comments on blockchain come just a few days after China’s president lauded the technology, and encouraged its development. WeChat owner Tencent also pointed out China’s leading position in blockchain, plus the threat of Facebook’s currency project Libra.