Why PBOC leads in digital currency R&D?
Zhou Xiaochuan, the governor of PBoC was cited at the Boao Forum, an important annual conference held in Hainan province.
“If everyone is holding cash, even negative interest rates policy is not able to stimulate the economy. With the popularity of digital currency, cash usage will drop significantly. During hyper-deflation period, negative interest rates are perhaps more useful than dropping money from helicopters.”
Besides digital currency, Mr. Zhou has also publicly confirmed Blockchain’s value in the future in an important press conference in early March.
“the development of digital currency and Blockchain technology will bring impacts that people now can hardly envision.”
As a matter of fact, Mr Zhou’s actions are even more proactive than his words. PBoC has become the pioneer in promoting a cashless world.
In early 2017. PBoC has completed a trial run of its cryptocurrency based on blockchain technology, and PBoC is moving closer and possibly become the first central bank to issue digital money.
For Mr. Zhou, China will benefit a lot by launching its own digital currency in areas like monetary policy, crime prevention and taxation.
About negative interests rate policy, Mr Zhou made it clear during his speech at Bo’ao forum.
“Chinese central bank would not rule out the use of negative rates if deflation occurs in China.But the effect of such policy will be very limited as people tend to hold cash rather than save money in the bank. If we have digital currency, on the other hand, the cash in circulation will be much less as people’s money are saved in the bank. In this case, negative interest will be more effective in stimulating economy and consumption.”
Indeed, countries that has used negative policy can hardly say they have benefited greatly from the policy. The promotion of digital currency or even disuse of cash of the monetary policy will mean negative interest policy becomes effective as people are unable to hold cash. Therefore, negative interest rate will be extraordinary in driving consumption. Likewise, increasing interest rate could also cool-off the consumption when the economy is overheated.
2. Taxation & Crime Prevention
As drug deals and corruption rely on cash, digital currency will be much more advantageous in terms of crime prevention. Furthermore, a more transparent trading system can help the government to collect taxes more effectively and makes the personal credit rating more convenient.
The chart shows the more cashless a country is, the less corrupted it is.
3. PBoC leads in researching in digital currency
PBoC started the digital currency research since 2014 and has been working to develop its own digital currency. PBoC has recently completed a trial run of its cryptocurrency based on blockchain technology.
The central bank of Sweden is considering to issue digital currency as it is almost a cashless country. The ratio between cash in circulation to GDP has dropped from 10% in 1950s to 1.5% today. The central bank is expected to reach a decision on the e-krona(digital currency) within the next two years.
Most the central banks are considering to promote digital currency policy.
2014, Demark’s central bank has stopped printing money notes.Denmark wants to go cashless by 2016.
In December 2016,South Korea’s central bank has announced to eliminate the coin due to its high production cost.
EU, Canada, UK also plan to move towards to cashless societies.
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