Central bank says official digital currency possible for China

Digital currencies have been in the spotlight with the rise of bitcoin in recent years.

China’s central bank said it is studying the prospect of issuing its own digital currency and aiming to roll out a product as soon as possible, contending that alternative payment systems can improve the efficiency of global transactions.

This team should now “set up clearer strategic objectives for launching digital currencies, overcome the technological barriers… and aim for an launch of the central bank’s digital currencies”, the PBOC said (link in Chinese).

It added that a digital currency would also help reduce money laundering and simplify the trading process.

The team conducts advanced research work in digital currency with relevant worldwide agencies and establishes a communication link between the domestic and foreign financial institutions to participate in discussions to bring attention to research in digital currency.

So why is China pursuing its own digital currency? It was attended by the governor of PBOC, Zhou Xiaochuan, deputy governor, Fan Yifei, and currency experts from Deloitte and Citibank among other currency experts. But the central bank balked at doing that because of worries over the stability of the yuan, the banking executives close to the PBOC said.

Zhang said the liquidity injections, via the three policy tools of the standing lending facility (SLF), the medium-term lending facility (MLF) and pledged supplementary lending (PSL), could be between 600 billion and 800 billion yuan. Could we consider this as a signal that the central bank will use lesser RRR cuts in the near future?

Concerns about the yuan and the annual cash crunch ahead of next month’s Lunar New Year holiday dominated a meeting held by the People’s Bank of China on Tuesday, according to minutes of the meeting reviewed by The Wall Street Journal and to accounts from banking executives close to the PBOC.

The central bank didn’t reply to a fax seeking comment on the guidance given to banks regarding their repo operations.

The situation aggravated last month, following the addition of yuan in International Monetary Fund reserve money and ahead of widely anticipated hike in the U.S. interest rates.