This article comes fromChina Daily, original author: Chen Jia

Odaily Translator |

Odaily Translator |

China is testing multiple ways to launch the country's first central bank digital currency (CBDC), Chinese officials and experts said, anticipating greater private sector involvement in creating the government-backed currency.

Based on ongoing trials in several areas, the time is nearing ripe for the introduction of a CBDC. But experts close to China's central bank said on Monday that Facebook's announcement of its digital currency Libra could prompt Chinese regulators to reconsider the possible model for a CBDC.

• After five years of research, the central bank is almost ready to launch its own digital currency, Mu Changchun, deputy head of the payment and settlement department of the People's Bank of China (PBOC), told a forum a week ago. He said the central bank started system development work in 2018.

According to Odaily’s previous reports, Mu Changchun said at the China Finance 40 Forum that the central bank’s digital currency will soon be launched and will adopt a two-tier operating system, that is, the upper layer is the People’s Bank of China, and the second layer is commercial institutions. The reasons are as follows: 1. The central bank’s digital currency must face the retail scene and the public, while the performance of Bitcoin and Libra cannot meet high concurrency. After research, it is decided to adopt a two-tier system; Complex system engineering; 3. The IT infrastructure application and service system of commercial banks and other institutions are relatively mature, with a huge user base and service habits have been formed; the talent reserve is relatively sufficient, and there are many IT experts; A certain amount of experience has been accumulated in the application of financial technology; 4. It can avoid excessive concentration of risks on a single individual; 5. Single-tier investment will lead to "financial disintermediation". The central bank's direct release of digital currency to the public will have a crowding out effect on commercial bank deposits and affect the ability of commercial banks to issue loans; in extreme cases, it will also subvert the existing financial system, resulting in a "big unification" situation in which the central bank dominates the world; 6. The double layer will not change the creditor-debt relationship of currency in circulation, will not change the existing currency delivery system and binary account structure; will not affect the existing monetary policy transmission mechanism; 7. The central bank will not preset technical routes, any advanced All technologies may be used in the research and development of the central bank's digital currency; the boundaries between electronic payment and the central bank's digital currency are blurred; market forces can be fully mobilized to achieve system optimization through competition.

Experts predict that if all goes well, the Chinese government-backed digital currency could predate Libra's official launch.

The central bank's original plan may have been influenced by Libra, the digital currency plan proposed by Facbook, the world's largest social network, in June. Yang Dong, director of the Center for Fintech and Internet Security Research at Renmin University of China, told China Daily that this sparked discussions among Chinese financial regulators, prompting designers to rethink various aspects of involving more non-government institutions in the CBDC development and issuance process. mode.

Yang Dong said, "Before the official launch of China's CBDC, further testing is required to get inspiration from Libra."

"The next pilots should focus on non-government and cross-border scenarios using CBDC. Multiple players, including private and state-owned enterprises, can join the process together with the central bank," added Yang Dong, who declined to disclose participation in the pilot specific company name.

Shao Fujun, chairman of China UnionPay and a former official of the People’s Bank of China, said that the potential forms and plans of CBDC are various and are still under discussion. "It will have many positive effects, including tracking the flow of money in the economy and supporting the setting of monetary policy."

But Shao Fujun said that there are also difficulties, such as the international coordination of monetary and exchange rate policies.

“The situation we are in now is like a horse race where several designated institutions will take different technical routes to develop digital currency and electronic payments. The winner will be the one with the best approach, accepted by the public and the market. So this It is a process of market competition.” Mu Changchun emphasized that the digital asset must be placed under the supervision of the central bank.

As described in Facebook's white paper, Libra will be "fully backed by a reserve of real assets." It also plans to build a global network with 27 companies and entities as founders, including the world's oldest payment giants Visa and Mastercard. The network aims to eventually include 100 members by launch in 2020.

The Chinese CBDC will be controlled by the central bank, and residents will be able to exchange digital currencies at commercial establishments. According to the central bank official, the CBDC is also backed 100% by reserves paid by commercial institutions to the central bank.

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