Could China create a digital currency to rival bitcoin?
China has been diligently developing a digital currency of its own, and recent reports from within the country indicate it’s close to launching its version of a bitcoin alternative.
Facebook’s recently announced plans to launch a proprietary cryptocurrency (Libra) is likely behind China’s rare openness about its plans.
Details regarding the currency are still vague, and no launch date has been announced. This will add one more to the types of digital currency already in use.
China’s Digital Currency
China has started releasing bits of information about their digital currency project. The People’s Bank of China (PBOC), the Chinese central bank, will be both the creator and distributor of the currency.
The digital currency will be distributed seven of China’s key financial institutions. It is thought these financial institutions will include the five top Chinese banks and two financial technology companies who will play the role of primary dealer.
When these selected institutions receive digital tokens, they will be responsible for their disbursement throughout China. This dual structure is justified by the deputy director of the Chinese central bank’s Payments Department, Mu Changchung, who explained the approach by saying, “It can not only use existing resources to mobilize the enthusiasm of commercial banks but also smoothly improve the acceptance of the digital currency.”
The PBOC states the move will “protect” its foreign exchange sovereignty. Jeremy Allaire, the Founder, Chairman, and CEO of the digital currency company, Circle, stated “This becomes a mechanism by which (the yuan) can be used in everyday transactions all around the world.”
Beijing has been pushing for international entities to use the yuan outside of China in recent years, and according to Allaire, “…I think the bigger opportunity here is this is a way for the Chinese yuan to be distributed globally,”
Lira by Facebook is about to join the other types of digital currency that seems to be gaining acceptance around the world.
Unveiled in June, Libra is different from other cryptocurrencies including bitcoin in that it will be backed by government-backed money. This backing should protect it from the speculation and volatility of bitcoin and similar digital currency.
According to Facebook, Libra is designed to be safely stored on user’s smartphones and allows people to securely send and receive the currency around the world.
How quickly U.S. citizens will accept Facebook’s digital currency is anyone’s guess at this point. The number of Americans using bitcoin and or a bitcoin alternative ranges between 8 and 12 percent depending on the reporting source.
Most of these investors know the risk and are willing to take a chance on a loss. Even if Facebook can convince the average American to use their digital currency for everyday transactions, it will take some time.
China’s hope for its bitcoin alternative is to promote the global distribution of the yuan. Allure has stated, “It’s ultimately a foundation for the internationalization” of the yuan.
Currently, the U.S. dollar is the world’s “reserve currency,” and about 58 percent of the world’s foreign exchange reserves are in U.S. dollars. Changchung’s says China’s new cryptocurrency will be similar to Facebook’s Libra in that it can be used on various platforms such as Tencent’s WeChat, and can be used even when an internet connection is not available. He also stated that China’s digital currency will “be as safe as central-bank issues paper notes.”
Allaire explained that China’s digital currency “bypasses the Western banking system, Society of Worldwide InterBank Financial Telecommunications (SWIFT) which allows the world’s financial institutions to send and receive information on cross-border payments.
It may be the best way China can maintain strong control on its country as changing winds herald the developing ubiquity of digital currencies.
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