Why Does the Central Bank Need to Issue Digital Currency (Why the Central Bank Introduces Digital Currency)

Why does the central bank need to issue digital currency? According to a report by China Youth Daily, during the “Second Yangtze River Delta Financial Technology Cooperation Forum,” economist and writer Lang Xianping and associate professor Li Tianzhao from the School of Finance and Economics at Renmin University of China expressed that “the first technology our country must introduce is digital yuan. If paper currency is considered a tool for printing money, it actually represents a new technological form.” I am very interested in this issue: What is digital yuan? What is electronic payment? What is blockchain-based digital currency? How to enable people to use cash for consumption? These are the questions that I believe need to be answered.

Starting a few years ago, with the continuous rise in the prices of digital assets such as Bitcoin, various altcoins also experienced significant fluctuations. Recently, some mainstream currencies experienced steep declines, such as the collapse of Libra (member countries of the Libra Association) and the news from the US Treasury Department proposing a ban on Americans holding cryptocurrencies like Bitcoin, and the US dollar once again shined. Many institutions have now proposed their own plans and ideas, such as Facebook creating a new social media account and posting a similar tweet. However, because many countries are currently researching the issuance of digital currency, it is somewhat unpleasant. “Many people ask me if digital currency should be issued?” I mentioned in an article in October last year: “I want to design the digital yuan as our settlement currency.” Because there is still a long way to go in the existing economic system, and there is no country’s legal tender that can replace the current basket of currencies, this phenomenon arises:

First, a global credit crisis is happening, and many countries are not yet ready to deal with this situation. However, this epidemic has affected various industries worldwide, and some government officials have even caused significant impacts in resisting inflation. Therefore, for our country, besides not being able to completely solve the problem of inflation in the short term, there are significant impacts in other aspects.

Second, the private sector may prefer to utilize the power of the private sector to control the money supply and promote economic development, in order to better leverage its advantages and development. Of course, this is also related to China’s policy attitude.

Third, virtual currency will become a means for illegal activities, which is an inevitable trend—when the People’s Bank of China decides to issue its own digital currency, it will also arouse international attention. However, some domestic regulatory authorities are not optimistic about this, and they feel that this proposed law itself does not make any sense. And there are certain risks.

Why does the central bank introduce digital currency?

Why does the People’s Bank of China need to introduce digital currency? On October 22, 2017, the PBOC website released the “China Financial Stability Report (2020)” (hereinafter referred to as the “Report”). Wang Xin, Director of the Research Bureau of the People’s Bank of China, wrote in the report: “The data released this time shows that as of the end of 2019, China has accumulated more than 40,000 individual digital wallets. Currently, more than 50 Internet companies and over 10 million people have registered to receive electronic payment cards or paper currency.” In addition, since 2015, the central bank has developed and promoted legal digital currencies five times. In the first quarter of 2018, it officially began testing the digital yuan pilot. “After January of this year, we have also added some non-bank institutions to participate in the technical construction of the central bank’s issuance of digital currency.”

So why does the central bank need to introduce digital currency? Specifically, it is to: 1) reduce costs through technological means, 2) improve transaction efficiency, and 3) achieve inclusiveness.