China's coming digital currency is likely to be a crypto currency: The Nation columnist

In the race to see which country develops the first crypto currency under the control of a central bank, China clearly has a head start.
In the race to see which country develops the first crypto currency under the control of a central bank, China clearly has a head start. PHOTO: REUTERS

In January, the People's Bank of China (PBOC) announced that it is planning to launch a digital currency and that development is already well underway as it has been working with a group of experts on the project for the past two years.

While it didn't release details of its plans, it is likely to be a crypto currency, based on the block chain technology which is used for Bitcoin.

The major difference between the planned Chinese crypto currency and Bitcoin would be control.

Whereas Bitcoin is anonymous in much the same way as physical cash, the new Chinese crypto currency would be issued by the PBOC, which says it wants to use its control over the currency to reduce money laundering, tax evasion and other criminal acts.

Other countries, apart from China, are also developing their own crypto currencies - for example the Philippines is working on an e-Peso, while Mexico is racing to introduce the Peso Digital, which would use block chain technology and be under the control of the Mexican central bank.

Meanwhile, Bitruble, a new Russian crypto currency, is also being developed and it too would be issued and circulated by the country's central bank.

There are many challenges to developing a crypto currency as it needs to have similar benefits to physical cash - such as anonymity, portability, transparency and reliability, but central banks will need to have some control in order to manage monetary policy.

Moreover, governments like the idea of using a crypto currency to track money transfers and raise taxes.

To resolve such dilemmas, the Mexican central bank plans to have three block chains.

The first would be modeled on Bitcoin's, allowing anonymous, transparent and irreversible transactions of the Peso Digital between two people without any intermediaries; the second would be for large interbank transactions; the third would be linked into the tax system.

Thanks to its experience with Bitcoin, China already has the technology, markets and skilled people that it needs to develop its own crypto currency. Although in December 2013 the Chinese government barred banks and financial institutions from treating Bitcoin as currency, Bitcoin continues to be mined and traded in China. 

Indeed, nearly 75 per cent of the Bitcoin that is traded globally is through the Chinese exchange, Bitcoin China (BTCC); most of the hardware used to mine Bitcoin is produced in China and Chinese miners are thought to account for 30 per cent to 60 per cent of the total mining of Bitcoin.

In the race to see which country develops the first crypto currency under the control of a central bank China clearly has a head start, so perhaps it won't be too long before we see the eYuan.

This will certainly attract the strong interest of the authorities in Thailand, which are working on their own plans for a cashless society.

Although so far there has been no mention of the BOT producing an e-Baht - it seems that it is definitely a possibility for the future!

The writer is chief executive of Bangkok Bank (China).