China’s central bank said it is studying the prospects of issuing its own digital currency and aiming to roll out a product as soon as possible, contending that alternative payment systems can improve the efficiency of global transactions.
The People’s Bank of China set up a research team in 2014 to study digital currencies and application scenarios, according to a statement posted on the regulator’s website. The PBOC said it has consulted with experts from Citigroup Inc. and Deloitte LLP, though it didn’t specify what technology it would be using to issue its digital currency or how it would work in relation to the yuan.
Digital currencies have gained prominence with the rise of bitcoin, which is mined with high-powered computers and operates with a distributed ledger that contains the payment history of every circulation. China has become one of the biggest markets for bitcoin and miners, as Chinese regulators have largely taken a hands-off approach with bitcoin exchanges and businesses.
“They’ve recognized the opportunities the digital currencies have,” said Zennon Kapron, managing director of Shanghai-based consulting firm Kapronasia. “If they did have something the government could monitor and use, that could fit into their longer-term plans.”
An estimated $843 billion of capital flowed out of China in the 11 months through November, according to a Bloomberg estimate, and policy makers are having to add funds to the financial system to prevent interest rates rising amid an economic slowdown.
Early bitcoin adopters envisioned the currency as a means to obtain freedom from control from central banks and financial institutions.
Bitcoin was created in 2008 under the name of Satoshi Nakamoto, a programmer or a group of programmers, and does not operate an administer, like a central bank. Rather a network of volunteers validate transactions via their computers, which require encrypted electronic signatures, and in return earn fees based on market prices.
“Right now it’s too early to see what effect PBOC’s move will have on China’s bitcoin community,” said Wang Chun, Beijing-based co-founder of the world’s second-largest bitcoin mining pool F2Pool. “They could decide to let bitcoin co-exist with its own digital currency, or chose to crack down on it.”
The price of bitcoin rose 1.6 percent to $413 as of 4:15 p.m. in Hong Kong, according to data compiled by Bloomberg. The digital currency surged 36 percent last year.
The Philippines is already trying to use blockchain technology that underpins bitcoin to issue its own digital currency. Nasdaq OMX Group Inc. wants to become the first major exchange operator to use blockchain technology.
Often when a revolutionary technology first enters the public realm, it emboldens early adopters, said Charles Mok, an IT advocate who serves on the Hong Kong Legislative Council. Still, commercialization of the new technology needed to make it available to the masses fuels property rights and government enforced rules, he said.
“It’s always a tug of war between the government, the regulators and non-government organizations,” said Mok. “It’s natural that governments will say they want to come because of the financial market impact, they want to protect consumers.”