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How China’s Digital Currency Will Spur Competitiveness

How China’s Digital Currency Will Spur Competitiveness

A Chinese central bank official recently said that the launch of its digital currency would lead to a horse race. According to the official, it would spur competitiveness in the banking sector as firms compete to offer the best services based on the digital currency.

China is in the final stages of launching the digital version of its national currency. The nation has many of the things that it will take to launch the coin already figured out. For instance, China has already launched its cryptography laws. Central bankers are no doubt closely studying this development.

Just the proposed Facebook Libra project, the Digital Currency Electronic Payment project is going to rely on blockchain technology in part. The central bank of China has said that it will use a two-tier model to launch its project. Mu Changchun, who heads the bank’s digital currency efforts made the remarks in a forum held in Hong Kong. First, the coin will be issued to commercial banks and other major institutions. These institutions will then distribute the coins to the masses.

The official said that he believes this will lead to a horse race with the winner taking over the entire market. In short, the firm that offers the most efficiency and offers the best services to the public is the one who will be victorious. Mu added that the central bank was neutral on which technology would be used for mass adoption. However, he added that the firm that emerges victorious would see their technology adopted by other players.

No Interest Payment

The digital currency has been designed as a substitute for existing fiat cash. As such, holders of the coin will not be awarded any interest payments. The implication is that it will not have an impact on the bank’s monetary policy or inflation.

This project has been compared to Facebook Libra. However, it is more likely that it will allow China to have better oversight over how money flows within the country. The project’s main motivation appears to be China’s desire to project its monetary policy over fears that emerging payment systems around the world could make illegal cash flows possible.

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