China’s central bank looks into prospects for a digital currency

HONG KONG — China’s central bank said it is studying the prospect of issuing its own digital currency and aiming to roll out a product as soon as possible, contending that alternative payment systems can improve the efficiency of global transactions.

The People’s Bank of China (PBOC) set up a research team in 2014 to study digital currencies and application scenarios, according to a statement posted on the regulator’s website. The PBOC said it has consulted with experts from Citigroup and Deloitte, though it did not specify what technology it would be using to issue its digital currency, or how it would work in relation to the yuan.

Digital currencies have gained prominence with the rise of bitcoin, which is mined with high-powered computers and operates with a distributed ledger that contains the payment history of every circulation. China has become one of the biggest markets for bitcoin and miners, as Chinese regulators have largely taken a hands-off approach with bitcoin.

“They’ve recognised the opportunities the digital currencies have,” said Mr Zennon Kapron, managing director of consulting firm Kapronasia. “If they did have something the government could monitor and use, that could fit into their longer-term plans.” An estimated US$843 billion (S$1.2 trillion) of capital flowed out of China in the 11 months through November, according to a Bloomberg estimate, and policymakers are having to add funds to the financial system to prevent interest rates rising amid an economic slowdown.

Early bitcoin adopters envisioned the currency as a means to obtain freedom from control from central banks and financial institutions.

Bitcoin was created in 2008 under the name Satoshi Nakamoto, a programmer or a group of programmers, and does not operate through a central bank. Rather, a network of volunteers validate transactions via their computers, which require encrypted electronic signatures, and in return earn fees based on market prices.

“Right now it’s too early to see what effect PBOC’s move will have on China’s bitcoin community,” said Mr Wang Chun, Beijing-based co-founder of the world’s second-largest bitcoin mining pool, F2Pool. “They could decide to let bitcoin co-exist with its own digital currency, or choose to crack down on it.”

The Philippines is already trying to use blockchain technology that underpins bitcoin to issue its own digital currency. Nasdaq OMX Group wants to become the first major exchange operator to use blockchain technology. BLOOMBERG