On Oct 12, 2017, the Director of PBoC Digital currency institution Qian YAO uttered his optimism on the concept of a state-backed cryptocurrency, the first time there has been positive news from anyone in the Chinese government after the country recently banned ICOs and cryptocurrencies. And it appears that a government-issued cryptocurrency (ChinaCoin) seems to be inevitable.
What the presumable China coin will be like?
According to Mr. Yao, sovereign cryptocurrency boasts numerous advantages: credibility, value anchoring, efficient control and contribution to real economy.
Compared to Bitcoin, the ChinaCoin will be centralized, onymous-backend, crypted, and smarter.
The first three characteristics are obvious: ChinaCoin will be, to start with, a tool of state control leveraging technologies in cryptography, Blockchain, trusted cloud and embedded card etc.
The last point from the article is curious:
Mr. Yao foresees ChinaCoin as a state-of-the-art, outsmarting all the existing coins, to the point that it decides on own its supply, using complicated algorithmic and big data, AI, machine-learning etc. Imagine a coin that duplicates itself one day and burn itself another…
Why PBoC is into China Coin
- Tighter grip on the money supply and circulation.
Programmability and tractability of the chain tech will enable PBoC turn the money tap on and off with precision. In this manner, effective negative interest rates become feasible, and an inflation buffer no longer need (usually 2%). The target inflation can be decreased to zero. Meanwhile, the government gets a better track of the circulation of capital and related counterparties (think of China’s $8.5 trillion shadow bank).
- Eye on the $11TRN internet payment cake.
Digital currency is used by countries like Japan as an effort to build a cashless society. Given the fact that China is already highly cashless, why bother with digital currency?
Goldman Sachs said Chinese internet-payment market hit $11TRN in 2016. The delicious cake is shared between two private companies, Alibaba and Tencent. PBoC and the national banks unfortunately missed the train. And it appears they are not ready or willing to go cry in the corner abou it.
In August 2017, the PBOC launched an “Internet union”, a payment clearing and audit platform requiring all non-bank payment transactions involving bank accounts to be conducted through the network platform. A successful rollout of ChinaCoin, led by the national banks, can steal the whole cake away.
Quote from Mr. Yao:
“…state crypto will outclass all the existing e-payment methods”.
When will it come?
Despite being a killjoy by cracking down on ICOs, Beijing has been proactive on sovereign digital currency development. As early as in 2014, the PBoC set up a dedicated research team on the feasibility of state-backed digital currency. In Jan 2014, the PBoC set digital currency one of its strategic objectives. And in July 2016, small-scale experiments have been carried out on a Blockchain-based digital notes exchange platform.
However, PBoC doesn’t publish an agenda, owing it to the complexity of the country and the great quantity of the population.