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Former Governor of China’s Central Bank: Encourage Competition in Digital Currency

Zhou Xiaochuan, president of the China Finance Association and former governor of China’s central bank, or People’s Bank of China (PBoC), said on November 18 that the central bank encourages competition in the sectors of digital currency and electronic payment, but the consequence should be controllable.

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Zhou pointed out that the central bank has set up the digital currency research institute years ago in an effort to study the digital currency and fintech. Though it can organize research on these fields, PBoC actually cannot ensure its R&D plan the best one, as it is risky to choose the technology preference. In this sense, it’s necessary to bring multi-channel R&D and competition to it.

Based on Bank for International Settlements’ (BIS) definition of digital currency, digital currency could be divided into central bank’s digital currency, privately issued digital currency and public-private hybrid. The banker stated that digital currency is likely to develop with a variety of solutions, moving forward in competition.

Private sector can also participate in financial infrastructures, such as the payment system and digital currency system… but it must have a public spirit under government guidance.” Said the longest-serving PBoC chief at the 9th Caixin Summit, a conference deemed as one of the most authoritative and forward-looking annual events in China’s economy and financial sector.

Considering the significant effect the emerging e-payment and digital currency could have on the payment industry including the cross-border payment, Zhou said the technology development of digital currency and e-payment should have certain public spirit, and anti-money laundering and countering-financing of terrorism (AML/CFT) which are threats of today’s world, must be taken into account.

Currently, there are many inconveniences in the cross-border payment. However, if it leverages digital currency technology, it should be taken seriously to what extent the cross-border payment will influence the domestic macro-policy control. From the perspective of financial stability, the problems of exchange rate depreciation and capital outflow in emerging markets are quite severe this year, which also needs taking into account.

Regarding privately issued digital currencies, the former governor said the central bank is paying more attention to the stability of their value.

When integrating digital currency into cross-border payment, we might need a “stable coin”, a SDR-like multi-currency scheme. Since it has drawbacks to count on a single currency, or gold.”

Zhou concluded, “technically, we will certainly consider applying the advances made in e-payment and digital currency to cross-border payment, but more issues must be addressed before that.”

For the softer touch on cryptocurrency, this former governor’s speech has triggered a stir in the country’s crypto community over the past weekend. Will China reconsider the ban on cryptocurrency? Leave your comment below.

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