PBoC Adviser: Bitcoin is A Utopia, State-backed Digital Currency is Still Considerable

In recent years, central banks from the around the world have been actively exploring the prospect of issuing their own digital currencies. Fan Yifei, the vice president of People’s Bank of China, used to publish an article to demonstrate some specific design philosophy of central bank-issued cryptocurrency in early this year.

Of late, Sheng Songcheng, a counselor to People’s Bank of China (PBoC) who has served the central bank for over 20 years, indicated that bitcoin and other cryptocurrencies are not real money, thus, PBoC is still considering whether it is necessary to issue digital fiat currency.

Sheng believes that virtual currency and electronic currency are two completely different concepts. Bitcoin and other cryptocurrencies are not real money in essence.

“The nature of bitcoin is to realize currency denationalization and I think this is a Utopia.”

Electronic money is a form of national credit money. Like paper currency, it is also a means of circulation and a store of value backed by state credit.

Sheng further pointed out that, on one hand, bitcoin still has technical limitations, volatility of its value also impedes bitcoin from becoming a true currency. On the other hand, monetary policy is  the main economic policy to majority countries all over world. State monopoly of the power to issue money is one of the basic conditions for monetary implemented. In doing so, state government may adjust exchange rates, commodity prices, employment and economic growth rate.

“In the foreseeable future, China will not abandon monetary policy, instead, we will strengthen monetary policy. Therefore, even if one day, digital currency is issued in China, it can only be issued by the central bank,” said Sheng.

Sheng also argues that, the existing payment system is already safe and convenient enough to afford large-scale transactions. Once blockchain technology is applied to currency circulation, it may even slow down the velocity of money circulation.

The traceability of cryptocurrency has been proclaimed as a new way to deal with the AML and anti-corruption activities. However, Sheng believes current electronic currency can also do the same thing and the frameworks of digital fiat money issuance and circulation have not been determined yet.

Furthermore, in order to promote digital fiat money to the general population, a “cashless society” must be realized first, which is very complicated and hard to achieve.

“The hidden and explicit costs of the issuing digital currency are considerable. It is not just a financial issue, it may affect the whole society.”

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