Former Architect of China’s Central Bank Digital Currency: Cryptocurrency Has Already Had the Potential to Become Real Money

Yao Qian, general manager at China Securities Depository and Clearing Corporation Limited (CSDC) and former director of the PBoC’s Digital Currency Research Institute, said that cryptocurrency has already had the potential to become real money as it’s correcting the fundamental defect of lacking value support.

Yao Qian speaking at the Global Blockchain Summit 2019 in Shanghai

At the Global Blockchain Summit 2019 ongoing in Shanghai, the open-minded former PBoC’s digital currency architect addresses a speech titled “Digital Asset and Digital Finance”. Yao explained that digital currency was a natural outcome of digital asset, in which both private and public sectors are pulling their weight.

“Virtual currency is correcting the fundamental defect of lacking value support. While from Bitcoin that lacks the support of underlying asset to various stablecoins pegged by fiat currency or based on an algorithm, and the recent JPM Coin and Facebook Libra, the problems of virtual currency in price swings and lack of regulation could hopefully be solved. On the surface, the value of virtual currency is anchoring the central bank currency; in fact, it is “de-virtualizing”.

Therefore, the concepts of cryptocurrency and virtual currency need to be re-examined. Cryptocurrency is no longer necessarily a type of virtual currency. In this sense, to differentiate cryptocurrency from virtual currency is of great significance.

Cryptocurrency has already had the potential to become real money, but at the monetary level, it is not necessarily a digital M0, but a higher level of currency than a bank deposit currency – Mn, which could provide more imagination.

Central Banks have long been considered unsuitable for the role of digital money supplier. A major concern is that when digital money is issued to customer-end, the central bank may face great pressure in service and costs, which is one of the difficulties all countries face in developing their digital currency. Currently, digital currency pilot projects conducted by central banks in various countries, such as project Jasper from the Bank of Canada, Ubin of the Monetary Authority of Singapore, Stella of the European Central Bank and the Bank of Japan, are experimenting with cryptocurrency technology, but they are still in business-end targeted scenarios…”

In Yao’s view, central banks around the world, currently making efforts in the research and development of digital legal tender, are not only focus on the digitization of the existing legal tender, but also study the possibility of digital currency in making up for the defects of their current monetary system in the future. He also put forward the concept of “WeFinance” which features that users can control and manage their digital identity and their digital assets, as well as conduct peer-to-peer transactions without the intervention of a third party.

“Digital currency is at the core of global digital economy competition in the future. At present, it is quite necessary to study the feasible path and plan of issuing global digital currency led by China. At the same time, China should vigorously promote and standardize institutional innovation, accelerate the construction of digital finance system. In order to ensure the sustainable development of digital finance, we should hurry up to establish a digital trust mechanism, and formulate digital finance systems in digital legal tender issuance and digital financial market supervision,” proposed Li Lihui, former president of the Bank of China and now head of the blockchain research at the National Internet Finance Association of China.

Li Lihui speaking at the Global Blockchain Summit 2019 in Shanghai

“Although the application scope of blockchain technology is not large and has not yet formed the scale effect, the emerging structural innovations, such as digital trust that can enhance commercial credit, digital connection that can penetrate financial intermediaries, and digital currency that can transcend national sovereignty, are disruptive. In particular, the appearance of Libra has set off a heated discussion on digital currency.” Li said.

China has been stepping up its efforts in developing its central bank digital currency these years, but few signs of progress have been revealed to the public; The release of Facebook’s Libra whitepaper motivated the CBDC designers to involve non-governmental entities in its development and bring CBDC to the sight of the public.

According to a previous report by 8btc, China’s state digital currency features a two-layer operation mechanism that entitles commercial banks or other institutions to disperse the CBDC and it is ready to roll out.

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