BANGKOK (THE NATION/ASIA NEWS NETWORK) - The Chinese authorities last week announced they were shutting down bitcoin exchanges.
Coming hot on the heels of a ban on Initial Coin Offerings, it was no surprise that the latest move sent the price of bitcoin tumbling. However, these moves do not mean that cryptocurrencies are finished.
Indeed, China is strongly committed to developing its own digital currency which would be under the control of the People's Bank of China (PBoC) which is already trailling its own as-yet unnamed cryptocurrency.
The main advantage of a national cryptocurrency is that transactions can be made speedily and cheaply, even across borders, and the central bank would have greater oversight over the financial system.
Moreover, it would fit well with the goal of central banks around the world to replace cash with electronic payments. Reflecting the innovation's importance China has been researching digital currencies for the past two years. Recently it established the Digital Money Research Institute, headed by Yao Qian, a former researcher at the Bank of China and a leading authority on this complex subject.
In his previous role at the PBoC, Yao published many papers in which he analysed the issues in developing a digital currency.
There is already a well-established and complex financial infrastructure in place. It would be both a monumental task to replace it completely with a digital system and also extremely disruptive. For example, a wholly digital currency could displace banks, as people would be able to hold their money in digital wallets held at the central bank rather than in traditional bank accounts. That, in turn, would affect the important role banks play in creating credit and circulating it through the system.
Yao, therefore, floated the concept of having a hybrid system whereby digital-currency wallets and traditional bank accounts could exist side-by-side and a national cryptocurrency and yuan could co-exist.
Despite these difficulties, the potential benefits of a digital currency for China are significant. It would decrease the cost of transactions, make financial services more accessible, reduce fraud and counterfeiting, make it easier to collect tax, and support international trade.
The PBoC says it intends to try new technologies and methods in a scientific, rigorous, open and inclusive manner. As China explores how it might make the transition to a national cryptocurrency, other countries can learn from its experience.
While the idea of a national cryptocurrency has not yet been openly discussed in Thailand, we can see that the Bank of Thailand is preparing us for the future. Its moves to encourage electronic payments such as PromptPay, the development of e-wallets, standardised QR Codes and the regulatory sandbox are all important building blocks that would enable us to make a smooth transition when the time comes.
The writer is Chief executive Officer, Bangkok Bank (China).