The People's Bank of China (PBOC) believes central banks should take the lead in the development of digital currencies, and favours the idea of adopting the circulation model of paper money, Deputy Governor Fan Yifei says.
In a Bloomberg article Fan says digital currencies have shown considerable promise and the best way to take advantage of the innovations they offer is for central banks to take the lead, both in supervising private digital currencies and in developing digital legal tender of their own. He says "this effort is underway" at the PBOC.
Fan acknowledges digital currencies have several problems including that their value isn't stable, their credibility is weak and they're not yet widely accepted.
"Digital legal tender, issued by central banks, could help resolve many of these problems. Such a currency would be guaranteed by state credit, and could enable synchronized applications both online and off with greater range, convenience and security," Fan says.
He goes on to say the PBOC is attracted to the idea of adopting the circulation model of paper money.
"The central bank would issue digital currency to commercial banks, the banks would in turn provide deposit and withdrawal services to the public, and together they would work to ensure the normal functioning of issuance and circulation,' Fan writes in the Bloomberg article.
"Using the existing system would make it easier for a legal digital currency to gradually replace paper money. It would also encourage commercial banks to participate in jointly administering the new currency, thus appropriately spreading risk, accelerating innovation, and better serving the real economy and the needs of the public."
"One important concern for the financial system is that legal digital currency will lead to easier disintermediation, which can influence money creation. Due to the swift transformation from deposits to narrow currency that such technology enables, a financial panic, once begun, could spread rapidly. Appropriate mechanisms must be in place to anticipate such scenarios and limit the risks they pose," Fan writes in the Bloomberg article.
2 Comments
Excuse my ignorance, but isn't that what the worlds currencies are now? When they put aside the Gold Standard, they opened the door to banks issuing or giving credit. This is in effect a digital currency in the same denomination as the national currency. Credit can be transferred between accounts instantaneously, including the paying of bills. the only time it steps away from being digital is when you go and get cash out, and then many banks will charge a cash handling fee. So to intents and purposes our currency is digital.
When I visited the USA a couple of years back I noticed how much cash they used. When we asked why people used so much cash ( as c.f EFTPOS ) the answer was simple. Since the financial crisis Americans no longer trusted banks.
When trust breaks down people will want paper currencies. But there is more. Electronic can be tracked and China wants to track its citizens.Compulsory use of electronic currency is ideal for this.
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