In early August, an official from the People’s Bank of China announced that they were close to launching their cryptocurrency. Yesterday Forbes reported sources as saying that the digital currency could launch as soon as November 11, Singles Day in China. This is the most important shopping day in China and is similar to Black Friday in the US.
Seven companies from the tech and finance industries will receive DC/EP (Digital Currency/Electronic Payments), as the coin is being referred to, to propagate them through the economy. The seven firms entrusted with this task are Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China, China Construction Bank, Alibaba, Tencent, and Union Pay. There is also the possibility that an eighth company could be added to this list. The two tiered-system for distributing China’s digital currency was previously mentioned by Mu Changchun, deputy director for the payment division of China’s central bank, in an interview.
The World’s First Digital Currency
Once the coin is launched, the institutions that receive it will be in charge of distributing it to China’s 1.3 billion citizens as well as others who transact using China’s national fiat currency. China’s central bank is hoping that this coin will eventually reach the US and other places globally via various relationships established with banking institutions in the western world.
The planned launch of this digital currency is in line with other ideas being suggested globally. For instance, the Libra project is backed by a basket of major fiat currencies. The project is being issued by a consortium of 28 firms that includes Uber, Vodafone, and Mastercard. A week ago, the Governor of the Bank of England Mark Carney, proposed the creation of a digital currency backed by central banks as a replacement to the domination of the US dollar in global trade.
But those projects are in the planning or theoretical stages. The Chinese DC/EP digital currency is ready. This may make the Chinese central bank the first one to launch a digital currency. At least, nineteen other central banks and governments are investigating the use and mechanics of releasing a digital currency in their economy.
A Speedier Coin
Mu Changchun noted that while Libra was touted to handle 1000 transactions per second, this coin could handle 300,000 transactions per second. The speed is essentially due to its architecture which, unlike cryptocurrency blockchains, is not decentralized. Mu added that the coin’s supply is not controlled by an algorithm but by the central bank.
According to him, the coin is intended to replace physical notes. This will enable the government to reach a wider swathe of population, including the unbanked masses, lower transaction fees for various services, and easily track the movement of DC/EP through its economy.
However, critics of digital currencies have pointed to the fact that it could enable easy state surveillance, something that China’s government is already infamous for. The effect of digital currencies on economies is also an untried experiment. As such, their introduction could also have undesirable repercussions such as increasing the influence of commercial banks on an economy. They could also result in a parallel economy if citizens hoard them as a store of value against the state currency’s volatility.