The head of the People’s Bank of China’s (PBoC) Digital Currency Research Institute has called for the Chinese central bank to adopt a government cryptocurrency to help bring stability to its fiat currency.
As reported by regional news source Yicai, Institute Director Yao Qian discussed the potential benefits of a government cryptocurrency at an International Telecommunication Union meeting this week. He says that while decentralized cryptocurrencies such as bitcoin lack value because they are not anchored to either intrinsic value or a state-backed currency, a government-backed digital currency would provide even more pricing stability than conventional fiat currency:
“The effective negative interest rate policy in the legal digital currency environment will make it possible that the central bank may no longer need to set the inflation rate buffer…theoretically the central bank’s target inflation rate can be reduced….From this point of view, the legal digital currency or help to improve the value of the legal currency stability.” Yao said, according to a rough translation.
As CCN has reported, China has taken a hardline stance against bitcoin and other decentralized cryptocurrencies, arguing that they have no inherent value and are being used by criminals to launder money, commit fraud, and subvert financial regulations. On this pretense, the PBoC prohibited the initial coin offering (ICO) fundraising model, as well as domestic cryptocurrency trading.
Yao also lauded the security afforded by distributed ledger technology, although he noted that central banks should not be limited to the confines of currently existent blockchain encryption algorithms but should rather continue to develop these algorithms to accommodate the unique needs of the banks themselves.
The Yicai article states that these comments represent Yao’s views only and should not be interpreted as an official PBoC position. However, it’s no secret that the bank sees digital currency as a way to effectively implement capital controls. Shortly after last month’s ban on cryptocurrency trading, PBoC-affiliated researcher Huang Zhen wrote that he expects the bank to issue a “sovereign digital currency under the auspices of the central bank” as soon as it is able, and the bank itself has issued similar statements in the past.