Rumors regarding various countries looking to create their own Bitcoin competitor have persisted for some time now. Until this week, there was no indication any major country would go through with those plans. China, on the other hand, is looking to shake up the financial markets once again. By creating a stablecoin of sorts, the country might be able to make the Yuan slightly more stable in the future.
Five Years of Work
For those who have kept tabs on what China is trying to do in terms of digital currency, this news might come as a surprise. Despite announcing their plans many years ago, most people had assumed the plan would not necessarily come to fruition in the end. Five years later, and the digital currency – which still hasn’t been named officially – is ready to be put into circulation over the next few months. Doing so may prove to be quite difficult, as there are still several hurdles waiting to be overcome.
The main hurdle to overcome is whether or not the people’s Bank of China will gain the necessary approval to create their own virtual currency. The current goal is to bring it to market fairly soon, but there is still no official timeline by any means. As such, no one knows for sure how serious the PBoC is about its virtual currency plan, especially given all of the delays and uncertainties surrounding it over the past few years.
A Complex Structure
Under the hood, China’s up-and-coming virtual currency will require a fair amount of participation from Chinese banks. The People’s Bank of China will be the main entity in this equation. Additionally, commercial banks will create the necessary infrastructure to ensure this virtual currency can be used throughout China accordingly. For the time being, it remains to be seen which requirements the commercial banks will need to adhere to in this regard.
No Blockchain Involved
Not too many people will be surprised that this virtual currency isn’t a cryptocurrency. It should never be looked as such either. There is one crucial difference: China’s new currency doesn’t use a blockchain. It is unclear which backbone is put in place as a replacement, however. The choice of not using a blockchain was rather straightforward. PBoC officials claim it simply can’t offer the required throughput for retail. A bit of an odd statement, albeit one that also makes sense. Cryptocurrencies have often been scrutinized for their lack of scaling and performance.
Financial Stability Remains a Problem
There are many reasons as to why the PBoC is looking to issue its own digital currency. Just last week, the bank decided to devalue the Yuan once again. This is all part of the ongoing “financial war” between China and the United States. Since China can’t do much in terms of tax tariffs, devaluing the Yuan is the only logical course of action. It creates even more financial instability in the country at the same time.
This new virtual currency might offer some relief. Creating stability for an inherently unstable currency will not be easy. Additionally, there is the growing concern over how long President Trump will try to hurt the country financially. A virtual currency would give the government more control over China’s financial sector as a whole. Whether this is a good thing or not, is up for debate. It would give the country a way to rely less on the US Dollar as a global currency.