China’s central bank is moving forward with plans to adopt a state-backed digital currency, but it will likely look very different from bitcoin and other public cryptocurrencies.
In an op-ed, which was published by regional media outlet Yicai, People’s Bank of China (PBoC) Vice-Governor Fan Yifei outlined the bank’s vision for its central bank digital currency (CBDC).
Fan made clear that the CBDC’s purpose is to replace physical currency (M0), and the central bank expects to exercise the same level of centralized control over digital currency as it does over cash.
He said that the CBDC, which may or may not be built using blockchain technology, is intended to save costs, increase efficiency and security, and — importantly — curb public demand for privately-created cryptocurrencies.
The purpose of the CBDC is to “save costs, increase the speed of currency circulation, improve payment convenience and security,” he said. “In addition, the credit advantage of having a central bank endorsement will help curb public demand for privately-encrypted digital currencies and consolidate my monetary sovereignty.”
Fan also stipulated that while CBDC transaction histories will not be accessible to the general public, the currency will have “controllable anonymity,” purportedly so that the central bank can mitigate terrorism and money-laundering, among other financial crimes.
“In addition, personal information and privacy are disclosed if no third party is anonymous, but crimes such as tax evasion, terrorist financing and money-laundering are encouraged if perpetual third-party anonymity is allowed. Therefore, in order to strike a balance, we must achieve controllable anonymity, disclosing the transaction data only to the third party of the central bank,” he said.
Notably, the central banker also said that it is unlikely that the CBDC network will support smart contracts because this functionality would alter the nature of the currency, which is meant to be digital cash.
“[A]dding extra social or administrative functions to the cash actually derails the renminbi,” he concluded, noting that the Chinese yuan can legally only be used for specific functions: pricing, exchanging value, and storing value.