Fan Yifei, vice-governor of the People’s Bank of China believes the best way to make the most of digital currencies is to supervise them and to create their own digital currency.
Writing in the Bloomberg View column, Fan states that in order for the PBOC to tackle the challenge of supervising digital currencies it needs to think about how it can maintain financial stability, innovation and proper supervision regarding the issuance and circulation of the new digital currencies.
With internet access increasing and encryption technology improving, the conditions are ripe for digital currencies, which can reduce operating costs, increase efficiency and enable a wide range of new applications.
While Fan adds that there are some fundamental defects with digital currencies with their credibility remaining weak and their distribution not widely accepted, the post from Fan suggests that the PBOC are keen to lead the way in developing digital currencies.
According to Fan, if central banks were able to issue digital legal tender it would help to solve many of the problems associated with digital currencies. However, in order to do so, several challenges would need to be overcome first.
Fan suggests two options.
Firstly, the central bank would supply the digital currency to the public and then subsequently take care of the issuance, circulation, and maintenance services.
Or the bank could adopt the model of paper money. This would mean that the nation’s central bank would issue digital currency to commercial banks who in turn would provide the public with deposit and withdrawal services while both entities would work to maintain the issuance and circulation of the digital currency.
Fan states that the PBOC are more inclined toward the second option, namely because the existing system will make for an easier transition for legal digital currency to eventually replace fiat money.
Earlier this year, PBOC Governor Zhou Xiaochuan spoke to Caixin Weekly and said that ‘digital currency will co-exist with cash for quite a long time before it finally replaces cash.’
Even though Fan said that the PBOC is ‘open to any safe and effective technologies and methods,’ they have no plans as yet to launch their own digital currency.
Zhou added in his interview earlier this year that the primary goal of the PBOC ‘issuing digital currency is to replace the physical cash so as to lower the costs of issuing and circulating traditional paper money and to improve the convenience.’
Despite the fact that the central bank has no plans to launch a digital currency just yet, the fact that they have a digital currency research team conducting in-depth studies on digital currency-related technologies suggests that they are highly serious about its applications for the future of China’s economy.
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Last modified: July 2, 2020 8:20 PM UTC