China has taken another step towards creating its own rival for Facebook’s Libra by appointing a new head of the central bank’s research subsidiary on digital currency.
Mu Changchun will replace Yao Qian, who was the first director of the People’s Bank of China’s (PBOC) research institute on digital currency, according to a report published on Friday by the official Shanghai Securities News.
The research institute was set up at the end of 2016 to study the possibility of issuing a sovereign digital currency when commercial tradeable cryptocurrencies started gaining traction before China banned trading in such currencies.
Yao, formerly the deputy chief of the central bank’s technology division, has joined the China Securities Depository and Clearing Corporation as general manager.
The PBOC is in the process of stepping up its efforts to launch a digital currency, with Facebook planning to launch Libra next year.
Libra, some believe, could strengthen the US dollar’s dominance and potentially sabotage China’s ambition for the yuan to become a leading reserve currency.
Mu said last month that the official currency “can now be said to be ready”, with Shenzhen then given the go ahead for a pilot programme on digital currency research and innovation as part of Beijing’s plan to make it a model city.
According to Mu, China’s sovereign digital currency would be based on the blockchain technology that underpins cryptocurrencies and would be a replacement for cash. In contrast to cryptocurrencies, like bitcoin where decentralised control is held by holders of the currency, the Chinese unit would be centrally controlled by the PBOC, with commercial banks having to hold reserves at the central bank for assets valued in the digital yuan.
Individuals and firms will also be able to open digital wallets with commercial banks and other financial institutions to use for purchases, savings or transfers.
In addition to its advantage of reducing costs [of transactions], the digital [yuan] would still be a centrally controlled sovereign currency and so [to be successful] it would require the same level of trust that the holder has for the central bank and government agencies
China’s main goal for creating an official digital currency is still to facilitate the use of the yuan globally, according to Mu, who has warned that the central bank has been cautious about using the digital currency for other applications.
“In addition to its advantage of reducing costs [of transactions], the digital [yuan] would still be a centrally controlled sovereign currency and so [to be successful] it would require the same level of trust that the holder has for the central bank and government agencies,” said Daniel Wang, chief executive of blockchain start-up Loopring.
“So from this perspective, there is no need to have too many expectations. There is virtually no conflict with the decentralised digital currencies represented by bitcoin, and there is no need to use them for comparison.”
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