The PBOC announced January 27 the completion of a successful trial run for a project regarding a digital bank acceptance exchange, making it the first central bank to come within grasp of testing its digital currency, or digital bill, and putting forward a real application for the blockchain.
The trial was completed on December 15, with the purpose of the digital currency to handle transactions and settlements of bank acceptance bills utilizing a digital ledger. The test run not only involved the central bank, but PBOC connected with several other financial institutions such as the Industrial and Commercial Bank of China, Bank of China, and the private bank WeBank.
The latest announcement came after initiation of the project as early as 2014 but was ramped up in January 2016 when the PBOC released a statement of discussions with Citibank and Deloitte regarding an infrastructure for a digital ledger. The motivation behind the interest was that digital currency would not only have the potential to reduce the cost of circulating currency, but also increase transparency and fight against financial crimes such as money laundering and tax evasion.
The currency will be asset-pegged by legal tender, most assumedly the Chinese Yuan. Perhaps in the future, this will lead to China being an entirely cashless society. This announcement promptly follows the tightening of the regulation of major Chinese Bitcoin exchanges; China may have been trying to reduce the popularity of Bitcoin to facilitate the adoption of their digital currency instead.
Also, the China Securities Journal reports that in March 2017, we will see the official launch of a digital currency research institute. Recruitment has been going on since November for people skilled in big-data systems, cryptography, and blockchain technology. As China’s financial sector is playing catch up with the rest of the world in regards to R&D of blockchain technology, we should see a rapid influx of blockchain projects based out of China.
If executed correctly, this may allow China establish its dominance in the financial sector globally. While four of the five largest banks by capital are Chinese, many still use outdated methods such as faxes and chop stamps to verify documents. In a globalized world where transactions are expected to be settled and cleared in as little time as possible, the investing into blockchain system may prove to be the invigoration that China’s financial system desperately needs.
“China is really interested in the blockchain,” Brian Behlendorf, executive director of the Hyperledger Project, one of the biggest global blockchain projects, told Reuters. “They’re looking at this as a leapfrog technology. Can you take a very backward, very paper based market, and reinvent that using blockchain?”