The head of the People’s Bank of China (PBOC) opened up about its proposed digital currency initiative in a new interview with Caixin Weekly today, suggesting that the Chinese central bank is considering options that do not use blockchain technologies in its development.
Speaking to the news source, governor Zhou Xiaochuan said that the PBOC is considering mobile payments, cloud computation, secure chip and blockchain tech as means to create and operate an electronic cash network.
However, Xiaochuan suggested that there's no indication of what the finished product will look like, going on to say:
”We will cooperate with the financial industry and science and technology community to continue researches on all kinds of innovative technologies, to improve the technical framework for issuing and circulating digital currency, and to fully predict, timely react to and effectively address risks that may emerge during the application.”
The comments follow speculation about the PBOC’s 20th January announcement of the program, which left it unclear as to what the central bank meant by its use of the phrase “digital currency”, a term long associated with bitcoin and other blockchain-based consensus networks.
Xiaochuan went on to indicate that blockchains today consume “too many resources” in terms of computation and data storage, and that the bank believes the technology would not be able to handle desired transaction volumes.
“We need to wait and see whether this problem can be solved in the future,” Xiaochuan said, noting the bank has invested significant resources in researching the topic.
One topic where bitcoin was specifically discussed in relation to the PBOC’s digital currency initiative was its ability to offer privacy, an attribute Xiaochuan said in the interview would need to be a component of the digital currency offering.
Though all bitcoin transactions are recorded and broadcast via the public blockchain, transactions are afforded a degree of privacy through the network’s pseudonymous address system.
Still, Xiaochuan said that the digital currency will use “many information technologies”, including cryptographic algorithms, to guard against counterfeiting.
As framed by Caixin, the question also alluded to the “51% attack” security risk on the bitcoin network, whereby a miner or collection of miners representing more than half of the hashing power would be able to corrupt the veracity of its decentralized ledger.
In this respect, Xiaochuan hinted that a blockchain-based digital currency issued by the bank was likely to run on a permissioned network that would guard against outside tampering.
“For a digital currency controlled by the central bank, a combination of technological measures, institutional design as well as laws and regulations will be applied to ensure the security of its operation system,” he said. “This differs from the bitcoin at the very start.”
Also discussed was the projected timeline for the digital currency initiative, with Caixin asking when the project could replace paper money.
Xiaochuan indicated that while there is no timetable yet for the release, it is unlikely that such a system would completely replace the need for a paper currency.
“It will only take several months for a small country to replace an old version of paper money with a new one. But it has taken about 10 years for China to do the same thing,” he said.
Xiaochuan suggested that if its digital currency was phased into the economy, it could become gradually more expensive to transact in paper-based money, thereby motivating users to make the transition.
Still, he acknowledged that the switch was likely to be slow, concluding:
”With the transaction costs of paper money rising, people will be motivated to opt more for digital money. But digital currency and cash will co-exist for a long time.”