The Director of The People’s Bank of China’s (PBOC) Digital Currency Research Institute, Yao Qian, has announced his determination that the issuance of a state-owned digital currency is necessary in order to “fundamentally guarantee the market position of… [China’s] currency”, as reported by Chinese media outlet, Yicai.
The Director of China’s Digital Currency Research Institute Has Spoken in Favor of Issuing a State-Backed Virtual Currency
Speaking at a meeting hosted by the International Telecommunication Union on October 12, Qian emphasized the potential benefits that China could reap through issuing a state-backed virtual currency. China’s Digital Currency Research Institute was founded in June this year, and is tasked with conducting research and development related to distributed ledger technologies.
Yao told attendees that “we hope that the legal digital currency should have a new quality, will go beyond the existing electronic payment tool, whether it is private digital currency or electronic money.” The Director also described digital currency as potentially comprising a vehicle through China can greater stabilize the value of its national currency, stating that “the effective negative interest rate policy in the legal digital currency environment will make it possible that the central bank may no longer need to set inflation rate buffering (usually 2%), theoretically the central bank’s target inflation rate can be reduced from [zero]. From this point of view, the legal digital currency [will] help to improve the value of the legal currency stability.”
Yao rejected the idea that China should recognize bitcoin as a legitimate form of payment, stating that “the value of cryptocurrencies such as bitcoin primarily comes from the market speculation. It will be a disaster to recognize it as a real currency. And the lack of a value anchoring inherently determines that bitcoin can never be a real one.”
Yao Dismissed the Notion of Legally Recognizing Bitcoin Payments Across the Chinese Economy
The Director described the proposed state-backed digital currency’s properties of being “value anchored”, and facilitating a “credit creation function” as providing advantages over private cryptocurrencies. Yao is reported to have stated that a “legal digital currency [will have] a credit creation function… [as] the currency itself is credit”, adding that “in essence… the money creation process is a credit creation process.”
The comments come a month after the initiation of China’s sweeping crackdown on cryptocurrency exchanges – which saw all but two of the nation’s virtual currency exchanges cease operations at the end of September. Last month, news.Bitcoin.com speculated that China’s crackdown may begin to soften after October 1st, as Chinese legislation containing regulations pertaining to virtual currencies that was passed in March was expected to come into effect at the start of the month.
The Director’s comments suggest that moving forward, China may seek to incorporate distributed ledger technologies into state technologies and processes, whilst seeking to inhibit the circulation and adoption of decentralized cryptocurrencies throughout society at large.
Do you think that issuing China’s currency via virtual currency will allow the central government to more effectively stabilize the value of the national currency? Share your thoughts in the comments section below!
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