China is on the brink of introducing a Central Bank Digital Currency (CBDC), which is expected to provide the People’s Bank of China (PBoC) with more financial data as well as bring major changes to monetary policy tools, according to a report by the China Economic Review.
The currency will face very little competition in the country, as China has banned private digital currencies.
With cryptocurrencies being decentralized, immutable and transparent, many nation states have been wary of allowing crypto activities to flourish, due to the difficulties in regulating cryptocurrencies. China has therefore come up with its own version of cryptocurrency — the CBDC — developed with the intention of being used in a much more centralized setting.
Apart from China, the emergence of the crypto ecosystem has drawn interest from other countries in this type of digital currency. Over 90 other central banks, including Sweden’s Riksbank, are researching CBDC technology.
Though many in the financial industry admit that the growth of digital currencies is unstoppable, China is determined to preserve the legal status of the renminbi, while curbing activities related to digital currencies. The country first issued regulations to limit the use of Bitcoin in 2013, and in 2018, investments relating to crypto were outright banned with crypto mining strictly discouraged in China.
As banks and government agencies in China have been conducting research on distributed ledger technology (DLT) and digital currency since 2017, the time is ripe for the country to take further steps towards digital payments to change the face of the financial industry.
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