China’s central bank closer to releasing digital version of its currency

China's central bank (People's Bank of China - PBoC) is finalising development of the digital currency: 'digital yuan'. The underlying tone of a total of 52 blockchain related patent filings by China’s Central Bank indicates that the future digital currency would try to bridge the gap between traditional blockchain based cryptocurrency, and the existing monetary system. Contrary to its predecessors (including Facebook’s announced cryptocurrency Libra), Digital Yuan’s hybrid approach will enjoy the technological cryptocurrency benefits such as transaction simplicity, multi-signature security and, ultimately, transparency, while retaining centralized control of the Central Bank of China.

Implementation of the currency will likely be gradual. Deputy director of the PBoC’s payments department, Mu Changchun, stated that the digital currency would replace M0 (monetary supply) or hard currency in circulation, but will not not replace M2, which includes checking accounts as well as high liquidity money market instruments. Such a course of action could provide for a controlled environment for transitions. In a society where the use of electronic and mobile payments are high, the digital currency would support yuan’s circulation and internationalization but not have an impact on any of the monetary policy tools. Additionally, filings made in October 2018 suggest requiring commercial banks to input KYC, or Know Your Customer, details into the digital coin.

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