China’s central bank head sought last week to head off speculative fever regarding the launch of a new state-backed digital currency.
Intense investor interest in China’s financial technology (fintech) sector has driven a stock market index tracking companies from the sector up by more than 50% so far in 2019, according to a Reuters report.
Fintech stocks are far outperforming the rest of the share market
Fintech stocks have outperformed the CSI 300 index, a broader Chinese share benchmark, by around 20% this year.
Part of the fintech excitement appears to be linked to plans for a new Chinese central bank digital currency (CBDC). In mid-August, a senior official from the People’s Bank of China (PBOC) had said that the launch of a CBDC was imminent.
Mu Changchun, head of the Digital Currency Research Institute at the central bank, said China would distribute its new digital currency ‘in the next few months’ via private sector firms, including social media giants Alibaba and Tencent.
However, on Tuesday PBOC governor Yi Gang downplayed prospects of an imminent CBDC launch, saying the central bank did not have a fixed timetable, according to a report in the South China Morning Post.
Yi also poured cold water on the prospects of China’s new currency being used internationally. Given China’s economic prowess and the global reach of its technology sector, a digital yuan could ultimately rival the US dollar in its status as the world’s major reserve currency, according to some observers.
“If [China’s CBDC] involves cross-border use, it will involve a series of regulatory issues regarding anti-money-laundering, anti-terrorism financing, anti-tax evasion as well as know-your-client protocols,” Yi said at a press conference in Beijing.
“research, testing, trials, assessments and risk prevention”
Yi Gang’s caution on prospects for a CBDC mirror comments made earlier this year by the general manager of the Bank for International Settlements (BIS), Agustín Carstens. The BIS acts as a consultative forum for the world’s central banks.
In a speech given in Dublin in March, Carstens reminded central banks that they control the global financial system’s traffic lights, and should proceed slowly in changing the rules of the road.
“Central bankers…prefer to tread cautiously into new territory,” Carstens said.
“There is a good reason for this. The monetary system is the backbone of the financial system. Before we open up the patient for major surgery, we need to understand the full consequences of what we’re doing.”
Global financial market regulators have also expressed alarm at the prospect of any digital currency gaining widespread global adoption before new rules to prevent terrorist financing, money laundering and other criminal use can be worked out.
Earlier this month France’s finance minister, Bruno Lemaire, said his country would block the launch of Libra, Facebook’s proposed new global payments coin, as it would represent a direct threat to the country’s sovereignty.
Facebook announced in June it aims to introduce a new digital payments coin for the 2bn-plus users of the company’s social media networks.
Last week Facebook’s chief executive, Mark Zuckerberg, acknowledged that his company’s currency plans had run into opposition.
“A lot of people have had questions and concerns [about Libra], and we’re committed to making sure that we work through all of those before moving forward,” Zuckerberg said.
At Tuesday’s press conference, China’s central bank head also added a number of broad conditions for a state-backed digital currency launch.
Any development of a digital coin would require further “research, testing, trials, assessments and risk prevention”, Yi said.
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