Chinese banks in two cities are testing a custom-built digital currency developed by the People’s Bank of China, according to information gleaned from local media reports and interviews with two individuals who are familiar with the central bank’s thinking.
The digital currency, known to the broader world as “ChinaCoin,” but officially referred to inside China as digital renminbi, or RMB, was developed by the PBOC in partnership with other private and public entities.
Eventually, Chinese authorities hope digital RMB will help the government strengthen oversight of the country’s banks, while helping to prevent financial crime.
“The reason they’re doing this is because they want to have more transparency to regulate how money flows between banks,” said Patrick Dai, founder of the Qtum foundation, creators of the Qtum blockchain project.
In recent months, certain local banks based in Shenzhen, a financial hub in southern China, and Guiyang, the capital of a province in the country’s southwest, have begun experimenting with first using the digital RMB network for settlement and clearing of transactions in the country’s interbank bond market.
China’s national media frequently cites transparency and efficiency as among the potential benefits of the digital renminbi project. However, in an interview with Caixin, a Chinese business publication, People’s Bank of China Gov. Zhou Xiaochuan said it would take China approximately 10 years to fully embrace the digital renminbi. China’s currency
But once it is widely launched, digital RMB will be more convenient, protect citizens’ privacy and maintain social order, Zhou said. Eventually, the digital adoption will allow the central bank to make better-informed decisions about monetary policy by allowing it to more closely monitor the movement of capital through the Chinese economy, he said, adding the system could also make it easier to prevent financial crimes such as money laundering.
Zhou also emphasized key differences between digital RMB and bitcoin, arguably the best known cryptocurrency. While the digital renminbi will incorporate some elements of blockchain technology, like the cryptographic algorithms that help secure the bitcoin network, it will more closely resemble a “permissioned” blockchain — a type of closed system that limits who can access and change information.
The Chinese system will also be centrally controlled by the government, a concept that contravenes what bitcoin enthusiasts consider to be the cryptocurrency’s most revolutionary innovation: the ability to maintain a monetary system that is resistant to centralized control.
”The elephant in the room is how much it could potentially increase [the PBOC’s] control,” said Chris Burniske, Blockchain analyst and products lead at ARK Invest.
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The PBOC isn’t the only central bank that’s exploring the feasibility of its own digital currency. The Bank of England joined with researchers at University College in London to create RSCoin, a digital currency for central banks. The Bank of Canada has also said it is developing a blockchain-based digital version of the Canadian dollar.