People’s Bank of China Governor Zhou Xiaochuan , in a latest interview with Caixin Weekly, has suggested that the central bank is not only interested in digital currencies but is also researching related technologies.

The intention of the PBoC to launch its own digital currencies was revealed last month in the minutes of the PBoC’s Digital Currency Seminar held in Beijing.

Speaking to Caixin Daily, Xiaochuan said, “The PBC has studied digital currency for a long time. History shows that currency has evolved abreast with technological advances and development of economic activities. The evolution from early-stage physical currency and commodity currency to the later credit currency was a result adapting to the development of commercial society.”

Digital Currency Issuance Framework

Xiaochuan said that digital currency should be designed in a way so as to ensure people’s privacy, while at the same time paying attention to social security and social order – appropriate instruments should be in place to deal with illicit activities.

“A balance needs to be struck between protecting privacy and cracking down on illegal activities”, he said.

Xiaochuan pointed out the principles underlying the central bank digital currency issuance framework:

• Convenience and security
• Balance between protecting privacy and maintaining social order and cracking down on illegal activities – money laundering and terrorism financing activities.
• It should be conducive to the efficient operation and transmission of monetary policies
• Control over monetary sovereignty should be maintained – digital currency can be converted freely but its convertibility will also be controlled

“We think, therefore, as a legal tender, digital currency must be issued by the central bank. The issuance, circulation and transaction of digital currency will follow the same management principles of traditional currency”, he said.

Digital Currency Technology

When asked about anti-forgery measures for the digital currency, Xiaochuan said that the bank will use many information technologies including cryptographic algorithm to ensure that the digital currency cannot be counterfeited.

However, the bank intends not to use blockchain technology as it has found that it consumes too many resources – both computation and storage, and cannot handle the current transaction volume, he added.  

“Besides block chain technology, the PBC’s digital currency research team has made in-depth studies on digital currency related technologies such as mobile payment, trusted and controllable cloud computation, cryptographic algorithm and secure chip”, Xiaochuan said. “We will cooperate with the financial industry and science and technology community to continue researches on all kinds of innovative technologies, to improve the technical framework for issuing and circulating digital currency, and to fully predict, timely react to and effectively address risks that may emerge during the application.” 

Timeline For Launch

He further said that the bank doesn’t have a time frame for the launch of digital currency and added that it will co-exist with cash for “quite a long time” before it finally replaces cash.

“At the current stage, the central bank's major goal of issuing digital currency is to replace the physical cash so as to lower the costs of issuing and circulating traditional paper money and to improve the convenience”, Xiaochuan said.