by John Galt
January 25, 2017 20:25 ET
Tonight the People’s Bank of China (PBOC) became the first large national central bank to announce that they would issue a digital currency.
Via Caixan tonight:
The People’s Bank of China (PBOC) completed a successful trial run of a digital bank acceptance exchange, moving closer to becoming the first central bank in the world to issue its own digital currency.
According to sources from the PBOC, the central bank on Dec. 15 completed the trial in transactions and settlements of bank acceptance bills using a digital currency it developed, supported by blockchain technology – a secure digital ledger that records online transactions.
The central bank’s digital acceptance exchange and currency system were put in place and connected for the test run with several commercial banks, including the Industrial and Commercial Bank of China, Bank of China and the private WeBank, the sources said.
In response to the creation of the Internet currency Bitcoin, Chinese monetary authorities have stepped up efforts to develop a government-backed sovereign digital currency. Similar efforts to explore future forms of money are underway by the U.S. Federal Reserve, the Bank of England and the Bank of Canada. Chinese regulators have tightened scrutiny of Bitcoin, which lacks any official backing, and have banned financial institutions from using it.
In addition, a digital currency research institute will be officially set up after the week-long Chinese New Year holiday that starts Friday, sources said. Recruitment to fill several positions in the institute was launched in November, seeking experts in developing big-data systems, cryptography, and blockchain technology.
To the ‘traditional’ central banks, this is shocking news that the PBOC is first. However the speed of the start date will shock many as when the Chinese New Year article ends. More from the article linked above:
When the system is ready, the central bank’s pilot digital bank acceptance exchange platform will be connected with the existing Shanghai Commercial Paper Exchange to form a national platform for bank bill transactions, said a person close to the central bank.
The central bank’s efforts to develop the digital currency started in 2014 when it set up a special research team to study the issue.
The efforts came into the spotlight in January 2016 when the central bank released a statement saying its experts were discussing along with Citibank and Deloitte a general framework for an electronic currency. It was the first central bank to voice support for the concept of digital cash. The bank suggested the digital currency would not only reduce circulation costs but also increase transparency and curb money laundering and tax evasion.
The PBOC says that China’s digital money will be legal tender backed by the central government, unlike Bitcoin, the encrypted electronic currency that can be bought, sold and transferred without a bank. Ultimately, both digital and paper currency will be in circulation, according to the PBOC.
With this option, the PBOC takes a leap ahead in the ability to crush deflation via the Germanic concept of hyperinflation. How, you might ask? Simple. Each digital account can be increased by a percentage based on the calculus of the central bank’s necessity to stimulate economic activity. Think about that; if the economy is slowing down, just add 15% in currency value to Wang Cho’s digital currency card and boom, he’s shopping. The paper currency citizens will see this and rapidly agree to surrender to the digital currency.
The methodology of running concurrent currencies is how the Bank of India should have approached this issue. India sadly got schooled by China on how to phase such a program into practical use.
Even Janet Yellen bows down to this move.