Bitcoin Killer: PBoC to Launch Own Digital Currency

The PBoC convened a digital currency summit today, with representatives from Citibank and Deloitte. PBoC Governor Zhou attended, as did Deputy Governor Fan. Relevant research institutions, major financial institutions and advisory bodies of experts also attended the meeting.

PBoC: 中国人民银行数字货币研讨会在京召开

English coverage: China Set to Develop its Own Digital Currency

The PBOC justifies this decision with a variety of reasons. First, it will eliminate the cost of fiat circulation. Exactly what this cost is in China is unclear – the nation is notoriously cagey with these kind of numbers – but to get an idea we can compare with the equivalent cost in the US, which comes in at close to $500 million a year for coins and a little over $800 million for paper notes. Second, and assuming effective implementation, it will virtually eliminate money laundering, tax evasion and forgery. Finally, it will promote settlement efficiency and, in turn, reduce the cost to all parties involved in any transaction.

That’s where things stand at the moment. The PBOC has now tasked its research team with putting together a plan to cover design, implementation and maintenance. In short, the bank has decided it is economically viable, and is now moving forward with execution.

The key technologies of Bitcoin is the blockchain and the open ledger. Bitcoin is supposed to be anonymous, but since the ledger exists for all time, if you were to use the same Bitcoin address or linked financial account and if someone could connect a person or organization to an address, anonymity quickly turns into a totally open book.

If you are the PBoC in China, there's no right to privacy in financial transactions. The citizen ID number could be their address. The PBoC could sit at the center and run the blockchain, while keeping track of the open ledger. All financial transactions will be open to the PBoC and government. No one would need a bank account to transfer money, it could be passed from ID to ID. Criminal fraud (as we know it today) could be quickly detected through the transaction chain.

The really big reform, as if this won't be a major change by itself, would be if the PBoC took complete control of money creation. Fractional reserve lending could be abolished. The PBoC, or any central bank, seeking to inflate the currency could proportionally credit all accounts in the system simultaneously.