Chinese Central Bank May Launch Digital Currency

Categories: technology, economy, governance

What? In January 2016, China’s central bank, the People’s Bank of China (PBOC), announced that it is in discussions to launch its own digital currency. By issuing a digital currency, PBOC hopes to increase its control over Chinese money supply and circulation. The bank did not specify a time frame or say how the currency would work in relation to its paper currency, the Yuan.

So what? The issuance of a digital Yuan could have extensive global financial implications. The official adoption of a Chinese digital currency could greatly increase digital currency legitimacy and familiarity, creating a digital-currency tipping point, driving widespread adoption of digital currencies. The Chinese economy is the world's second largest after the United States, and the Chinese Bitcoin market accounts for 80-percent of Bitcoin transactions. Thus, a digitized Yuan could serve as the world's next major reserve currency by making foreign exchange and trade easier, faster, cheaper, and more secure. A digital Yuan could also help reduce China’s currency circulation costs, boost transaction convenience and transparency, reduce money laundering and tax evasion, and potentially provide a way to track and control residents’ spending. If realized, these benefits could push other central banks, many of which are already considering the step, to finally issue a digital currency. However, those wary of government control could continue to use non-state digital currencies, such as Bitcoin, or seek ways to circumvent government oversight, thereby limiting the effectiveness of central bank controls.


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