The People’s Bank of China has plans to create its own state-backed virtual currency. The bank’s Vice-Governor, Fan Yifei summarized the bank’s vision for the cryptocurrency in an editorial published by Yicai.
Digital Currency Needs to Have Controllable Anonymity
Yifei claims that the purpose of the new currency will be to “save costs, increase the speed of currency circulation, improve payment convenience, and security.” China has expressed opposition to cryptocurrencies in the past. Thus, it is likely that this move is also meant to minimize the demand the Chinese citizens have for privately-encrypted cryptocurrencies. By providing an alternative that allows the central bank to retain some control, the bank can reduce some of the backlash it has received about their intention to crackdown on digital currency markets.
The state-backed digital currency will look a lot different than other cryptocurrencies, like Bitcoin and Ethereum. The bank intends it to be a form of digital cash, while Bitcoin is more often used as an investment. The bank also wants the currency to have a controllable anonymity to mitigate the appeal to criminals and terrorists.
According to the bank’s summary of the planned digital currency, “personal information and privacy are disclosed if no third party is anonymous, but crimes such as tax evasion, terrorist financing and money-laundering are encouraged if perpetual third-party anonymity is allowed. Therefore, in order to strike a balance, we must achieve controllable anonymity, disclosing the transaction data only to the third party of the central bank.”
The Bank Wants the Cryptocurrency and the Yuan to Function Similarly
The central bank wants the digital currency to serve only four functions: value scale, circulation means, payment means, and value storage. These are the same functions served by fiat currency. The bank does not want the cryptocurrency to serve any other social or administrative functions. Adding these additional functions could obstruct the Chinse Yuan. Fan Yifei wants to make sure the digital currency does not have any adverse effects on the internationalization of Yuan. Because it is functioning like the Yuan, it is expected to have all the same regulations concerning cash management and anti-money laundering that the Yuan abides by.