An increasing number of reports from China seems to indicate recently that the country is close to launching its own version of a digital currency. The recent presentation of plans by Facebook (NASDAQ: FB 187.09 -0.05%) to launch its patented cryptocurrency, known as Libra, could have played an important role in stimulating this informative attitude of China’s closed-mouth officialism. Although details are scarce and an official launch date has not yet been announced, Chinese officials have revealed the broad framework of this project in the past two weeks.
According to Forbes, China has opted for a two-tier strategy regarding the early launch of the digital currency in which the People’s Bank of China (PBOC), the Chinese central bank, will create the currency and then distribute it to seven key financial institutions from the country. These institutions will play the role of primary distributor and will probably include the five main Chinese banks together with financial technology companies: Alibaba (NYSE: BABA 176.965 -1.23%) and Tencent (HKG: 0700), as well as the Chinese association. banks known as Union Pay. Consequently, after receiving digital tokens from the central bank, these institutions will guarantee their timely disbursement throughout the country. This dual currency structure has been confirmed by Mu Changchun, deputy director of the Payment Department of the Chinese central bank, who justified this approach as follows: “You can not only use existing resources to mobilize the enthusiasm of commercial banks but also improve the acceptance of digital currency without problems. “
Chinese officials have also transmitted some other details in recent weeks regarding this digital currency project. It is reported that the system has the capacity to process 300,000 transactions per second in contrast to Libra’s ability to handle only 1000 transactions per second. This, according to these officials, is possible since the digital currency will not have a “pure blockchain architecture”. As a reference, the maximum volume of online transactions last year, during Chinese Singles Day, was only 92,771 transactions per second. In addition, according to reports, the digital currency will not require an Internet connection to work, will eliminate the counterparty risk and will be compatible with existing payment platforms such as WeChat and Alipay.
However, this development has given rise to an interesting enigma. Electronic payment methods are already deeply rooted in China, which makes this entire digital token launch exercise quite frivolous. As a counterattack, Chinese officials are quick to say that this measure will allow China to protect its “monetary sovereignty” amid unrecognized fears that Facebook Pound could reinforce the already gigantic influence of the US dollar on the global financial system.
However, there may be another reason for such movement. China’s wealth has been built on the basis of a state-led model of capitalism in which state machinery enjoys a huge influence on policy formulation and implementation.
As such, the proliferation of a cryptocurrency that is beyond Chinese state control will not be acceptable to the bureaucratic hierarchy. Consequently, the launch of a state-backed digital currency can be a cunning tactic by Chinese officials to maintain their control over the country against the changing winds announced by the rising ubiquity of cryptocurrencies.
Officials from the People’s Bank of China have hinted in recent weeks that the nation is almost ready to launch a digital version of its currency, the renminbi, to replace physical cash with consumer payments.
There are a number of unanswered questions about how it will work, ranging from whether you will use a blockchain to how private the system will be. Despite the unknowns, recent public comments from central bank officials have shed some light on the schedule and motivation behind the project. Here are three things we know:
Its launch is “close.” Whatever that means. Some have interpreted the comments made in July by Wang Xin, director of the PBOC’s research office, in the sense that Facebook’s plan to launch its own stable currency, called Libra, next year accelerated China’s plans to deploy A digital form of your sovereign currency.