On October 12, 2017, a report from China indicated that Yao Qian, Director of the Digital Currency Research Institute at the People’s Bank of China (PBoC), made remarks regarding a centralized state-backed digital currency.
The comments made during a meeting held by the International Telecommunication Union earlier in the week were representative solely of Yao’s personal opinion and should not be interpreted as an official stance of the PBoC. Based on a translation of the report, Yao said that a legal digital currency has a stable monetary value function, and a state-backed currency would provide advantages over bitcoin, which he referred to as a “private currency.” He said that a state-sponsored cryptocurrency would create tangible economic values, helping to stabilize the relative position of fiat currencies in the marketplace.
“The value of cryptocurrencies such as bitcoin primarily comes from market speculation. It would be a disaster to recognize it as a real currency,” said Yao. “And the lack of an anchoring value inherently determines that bitcoin can never be a real one.”
Historically, currency has been anchored by a commodity, such as precious metals. Transitions from the gold standard to fiat have since transformed the landscape of how legal tender is perceived; it is now based on the relative economic security of the government issuing the currency. To that end, Yao maintains that the inherent volatility of bitcoin diminishes its capacity to serve as feasible currency.
According to Yao, rather than rigidly adhering to the protocols of blockchain technology, China would be better served if it deployed a scalable, central bank-controlled version of a digital currency. One example he cites is that of UK’s RSCoin, a digital currency test project endeavored upon by the Bank of England and University College London, designed to address limited transaction throughput on the Bitcoin blockchain.
Based on Yao’s opinion, the state would benefit from deploying legal digital money. By creating what would effectively be negative interest rates, it may be possible for the PBoC to reduce its target inflation rate to zero, rather than using an inflation buffer (typically 2 percent).
The world continues to wait and see whether the opinions of Yao will result in policies to be handed down by regulators and the PBoC.