China looks hard at digital currency

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World's second largest economy considers joining race for digital currency, People’s Daily Online.

China is looking hard at the possibility of establishing a digital currency.

It's not alone – central banks and regulatory agencies in various countries are paying increasing attention to the development of digital currencies called central bank digital currencies (CBDC).

As of mid-July, at least 36 central banks around the world have released plans for launching a digital currency, according to a report recently released by the Bank for International Settlements (BIS), an international financial institution owned by central banks.

There are several reasons for the enhanced interest – first, the Covid-19 epidemic has increased the demand for paperless transactions and a digital currency can achieve targeted allocation of relief funds during the outbreak.

Digital currencies can also help cut social management costs as well as costs generated by the issuance and circulation of traditional paper currency, says Zhou Maohua, an analyst at the financial markets department of China Everbright Bank.

They can make the payment and settlement process safer, more convenient and efficient, and better support economic and social development.

Other insiders have pointed out that speeding up the research and testing of digital currency will be important as the digital currency first developed and put into standardised use may become a global standard.

With the continuing information revolution and the rapid evolution of the digital economy, the international community and major economies have paid great attention to the development of CBDC, according to a recent report by the People's Bank of China.

Sweden has entered the CBDC pilot test stage; some economies are engaged in research and development while others are verifying the feasibility of CBDC.

Based on its advantages in digitisation and security, CBDC can extend services to areas that traditional financial services are unable to reach through mobile app and network communications.

Unlike cash, which is totally anonymous, CBDC can achieve controllable anonymity – improving the efficiency and accuracy of identifying illegal and criminal acts such as money laundering, terrorist financing and tax evasion, while protecting users' rightful privacy.

Zhu Min, chair of the National Institute of Financial Research, Tsinghua University, considers the development of digital currency an important field and channel for the internationalisation of China's renminbi currency.

Digital currency will command future currency market competition, Zhu says. As the world's second largest economy and second largest financial market, China has a huge market for e-commerce and digital circulation, making the development and application of digital currency all the more important.

This article was originally produced and published by People's Daily Online. View the original at en.people.cn