China Central Bank exploring blockchain technology
China’s central bank, the People’s Bank of China (PBoC), is working on a prototype of a cryptocurrency that it could end up in circulation in the near future. Hovewer, there is currently no timetable for this, and the bank seems to be proceeding cautiously. It would be introduced alongside the China’s primary currency the renminbi. China will be simulating possible scenarios and running mock transactions using the cryptocurrency with some commercial Chinese banks.
The press release emphasizes that from 2016 to 2020 the PBoC will be taking steps to help China's financial industry embrace economic reform. Looking more broadly, the release, while not yet fully public, is the latest sign the PBoC is actively looking into the potential of blockchain technology.
Last January, it is reported that the PBoC had tested a blockchain-based digital currency, and it has since begun pushing for blockchain securities rules and publishing research papers on its efforts.
The potential benefits of developing a digital currency are significant, particularly in China. First, it would decrease the cost of transactions, and therefore make financial services more accessible. This could be especially significant in China, where millions of people still lack access to conventional banks.
Second, as it would be supported by blockchain, it has the potential to decrease the rates of fraud and counterfeiting, which would be of service to the government’s attempts to reduce corruption — a key concern. Third, it would make the currency easier to obtain, which would increase the rate of international transactions, allowing for more trades and faster economic growth.
Even more significantly, a digital currency would give the Chinese government greater oversight of digital transactions, which are already booming. And by making transactions more traceable, this could also help reduce corruption, which is a key government priority.
Issued by the Jiangsu Internet Finance Association in April, a report on Chinese internet pyramid schemes observed that there are over a dozen digital currencies in China, all of which are "illegal pyramid schemes in the disguise of digital currencies."
In May, a court in Peixian County, Jiangsu province sentenced a man to four years in prison for organizing a pyramid scheme in the name of promoting "Markcoin" and "Vikcoin." The organization turned out to have lured hundreds of thousands of clients, and the amount of money involved potentially reached hundreds of millions of RMB.
China is not the only country interested in overhauling its currency. This year India eliminated some banknotes in an effort to reduce tax evasion and illegal income. And while some other central banks, including the Bank of England, the Bank of Canada, Deutsche Bundesbank, and the Monetary Authority of Singapore, are studying digital fiat currencies, China’s test appears to be the first of its kind anywhere in the world.