People’s Bank of China Concedes Using Blockchain in its Own Digital Currency

News and Analysis

The head of the People’s Bank of China conceded the central bank may use blockchain technology for its future digital currency presently under development. Speaking to Caixin Weekly, Zhou Xiaochuan stated that the PBOC may utilize blockchain technology alongside with cloud computation, secure chips, and mobile networks in its electronic currency’s operation.

The statement could slightly clarify the matters around earlier utterances from the Chinese central bank. This January it stated it would be developing a digital currency without providing any substantial details explaining what it would be. The finalized version of whatever China’s digital currency may be, is still unknown to anyone, including the PBOC governor himself. He said:

“We will cooperate with the financial industry and science and technology community to continue researches on all kinds of innovative technologies, to improve the technical framework for issuing and circulating digital currency, and to fully predict, timely react to and effectively address risks that may emerge during the application.”

The governor also believes that blockchain in its current state is gluttonous for computation and storage capacities. More importantly, blockchain as it is does not meet the bank’s requirements for capability of handling the required transaction volumes.

“We need to wait and see whether this problem can be solved in the future,” Xiaochuan said, noting the bank has invested significant resources in researching the topic.

He also stressed that the bank has invested much in researching opportunities the technology may offer. Regardless of possible using blockchain technology itself, the governor stressed that the future currency will still employ other information technologies to secure the product against counterfeiting, which includes cryptographic protection.

Xiaochuan has made several hints implying that in case the bank still uses the blockchain technology, the network will be permissioned, as opposed to Bitcoin’s permissionless blockchain. Several major Western banks consider using permissioned blockchains in their operation as well.

“For a digital currency controlled by the central bank, a combination of technological measures, institutional design as well as laws and regulations will be applied to ensure the security of its operation system. This differs from the bitcoin at the very start,” Xiaochuan said.

In addition, the bank’s governor stated that the digital currency in question would hardly replace physical money, pointing out the difficulties involved in this kind of process.

“It will only take several months for a small country to replace an old version of paper money with a new one. But it has taken about 10 years for China to do the same thing,” he said.

The governor conceded that transacting paper money would become increasingly expensive, which would eventually incentivize everyday users to shift to digital forms of currency. He stressed, however, that this transition, should it happen whatsoever, is likely to take small steps. In particular, he said:

“With the transaction costs of paper money rising, people will be motivated to opt more for digital money. But digital currency and cash will co-exist for a long time.”

According to Xiaochuan, no schedules for the project are available now. Possible release date of China’s digital currency thus remains a question of indefinite future.

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