China to Respond to Libra with Government Backed CBDC

The PBOC is organising market-oriented institutions to jointly research and develop a central bank digital currency, in a programme that has already been approved by the State Council.

The PBOC (People’s Bank of China) has said it is accelerating efforts to introduce a government backed digital currency, in a bid to secure China’s position in the global cryptocurrency race, reported China Daily.

According to the director of the PBOC Research Bureau, Wang Xin, speaking at a seminar at Peking University, the central bank is organising market-oriented institutions to jointly research and develop a CBDC (central bank digital currency), in a programme that has already been approved by the State Council.

The move was prompted by Facebook’s 18 June announcement that it is planning to introduce a new global digital currency next year. The value of the digital currency, Libra, will be linked to a basket of major currencies, and backed by bank deposits and short-term government securities.

> ALSO READ: Facebook’s Libra – An Enabler of Money Laundering? (27 Jun 2019)

Twenty-seven companies and entities have joined the Libra Association, a consortium tasked with governing the digital currency from a base in Switzerland, including Visa, Mastercard, PayPal, Stripe, eBay, Uber and Vodafone.

“From the government’s perspective, we pay more attention to its influence on financial services, monetary policy and financial stability,” Wang said, adding that Libra should be monitored as it could challenge the dominance of the US dollar in the international monetary system.

The PBOC was one of the earliest central banks to start work on a digital currency. The programme began in 2014, led by former governor Zhou Xiaochuan.

“A digital currency issued by the central bank can improve the efficiency of monetary policy, and help to optimise the payment system,” Wang said. “We had an early start … but lots of work is needed to consolidate our lead.”

> ALSO READ: BIS Issues Report on Central Bank Digital Currencies (10 Jan 2019)

The PBOC will push for unified standards and regulatory rules, and work to improve international coordination and cooperation in digital finance, he added.

On Monday, Peking University launched its Open Research Initiative of Digital Finance to provide a research platform for innovation in digital financial products.

China maintains a blanket ban on cryptocurrencies, including bitcoin, which it regards as a source of financial risk.

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