Can Shenzhen Win Digital Currency Battle Against Facebook?
08 Sep 2019
Shenzhen, in China's southern Guangdong Province, could be the first pilot city in China to launch a national digital currency, following the central government's plan to work out its own government-backed cryptocurrency, according to an article published by the Global Times.
As Facebook prepares to launch its ambitious Libra cryptocurrency, China's top technology companies in Shenzhen, such as Tencent and Alibaba, as well as large state-owned banks, like China Merchants Bank, have begun research on the underlying technology to support the development of a government-backed cryptocurrency, industry insiders told the Global Times.
China banned initial coin offerings in 2017 and halted direct bitcoin-yuan trading due to concerns about financial risks. Yet signaling a change in policy, officials from the People's Bank of China (PBC), the country's central bank, said in early August that China will accelerate the research and development of its digital currency under a project called "digital currency for electronic payments."
Officials said that the PBC will designate several operating institutions to research related technologies, and those who come up with the best technological solutions will win market acceptance. Shenzhen Financial Technology Co (SFT), a wholly owned subsidiary of the PBC that was founded in June 2018, is recruiting staff and announced openings for blockchain engineers and research fellows in early August on online job-hunting platforms, media reports said.
"If the pilot program in the city is successful, it could be copied and promoted across China fairly quickly. If the program derails, it is also easy to bring it back on track in Shenzhen," says Meng Yan, vice president of the Digital Asset Research Institute.
In June, Facebook announced plans to launch its own digital currency called the Libra; which it said will be pegged to a basket of currencies such as the US dollar, the pound, the euro and the yen. The yuan wasn't included in the basket, and the 30 institutions working with Libra did not include a Chinese company. Some said that the move shows the US' desire to shut China out of the digital payment innovation system.
"To claim a foothold in the international currency battle, Chinese companies should also join hands with countries and regions involved in the BRI, with ASEAN countries and with India. Emerging markets share a common interest, and they don't want to see Libra grow into a dominant, super-sovereign currency that weakens their sovereign currencies' positions," said Shentu Qingchun, CEO of Shenzhen-based blockchain company BankLedger.
“Why is the central bank still doing such a digital currency today when electronic payment methods are so developed?” asked Mu Changchun, deputy director of the People’s Bank of China’s payments department; “It is to protect our monetary sovereignty and legal currency status. We need to plan ahead for a rainy day,” said Mu at a lecture he gave this week.
China’s proposed new digital currency would bear some similarities to Facebook’s Libra coin and would be able to be used across major payment platforms such as WeChat and Alipay, according to a senior central bank official. Mu said China’s digital currency would strike a balance between allowing anonymous payments and preventing money-laundering, would be as safe as central bank-issued paper notes, and could even be used without an internet connection.
Mu also said the advantage of a central bank-issued digital coin had over those issued by WeChat and Alipay was that commercial platforms could in theory go bankrupt which could cause users losses. Its ability to be used without an internet connection would also allow transactions to continue in situations in which communications have broken down, such as an earthquake.
- Global Times: Shenzhen takes lead in cryptocurrency
- Shanghai Securities News: 穆长春：人民银行数字货币呼之欲出
- China says new digital currency will be similar to Facebook's Libra
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