China sovereign cryptocurrency taking shape
(12 September 2019 - China) China has appointed a new digital currency head as the People’s Bank of China (PBoC) becomes set to become the first major reserve bank to issue an electronic currency equivalent to control and stabilise the rapidly digitising economy.
Mu Changchun will become the second director of the PBoC research institute on digital currency, replacing Yao Qian. The institute was set up in 2016 to examine the possibility of issuing a sovereign digital currency when commercial tradeable cryptocurrencies started gaining traction before China banned them in 2017. China banned cryptocurrency exchanges and initial coin offerings (ICOs) amid a wide scale effort to de-risk financial markets and regulate shadow banking. The PBoC is in the process of increasing efforts to issue a digital currency version of the Renminbi (RMB), with Facebook set to launch Libra in 2020. It is expected the Libra could underpin US Dollar strength and harm China’s ambition for the RMB to become the leading global reserve currency.
Uruguay has launched a pilot sovereign cryptocurrency program, labelled the 'e-Peso', that drew acclaim from the International Monetary Fund (IMF). Venezuela has a controversial cryptocurrency pilot called 'petro' while Sweden’s Riksbank is exploring the concept of issuing an e-krona. Bank of England (BoE) Governor Mark Carney called for Libra-like reserve currency to end the greenback’s dominance.
An anonymous survey by the Bank for International Settlements (BIS) revealed most global central banks are participating in theoretical and conceptual research with the exception of the Reserve Bank of Australia (RBA). RBA Governor Philip Lowe considered the creation of an "eAUD" in a speech in 2017 however ultimately found that a convincing case for issuing Australian dollars on distributed ledger technology (DLT) had not yet been made.
In a paper published in the RBA's Bulletin publication, four RBA analysts stated that they see "little likelihood of a material take-up of cryptocurrencies for retail payments in Australia in the foreseeable future". Cryptocurrencies face a trade-off known as the "scalability trilemma" where they can only offer two of the three crucial properties of decentralisation, scalability and security. The paper highlighted that Bitcoin can process ten transactions a second while Australia's New Payments Platform (NPP) that powers BPAY's instant Osko payment system can handle 1,000.
RBA payment policy department analysts Cameron Dark, June Ma, Clare Noone and David Emery also cite the well-publicised issues with cryptocurrency extreme price volatility, commenting "As long as the Australian dollar continues to provide a reliable, low-inflation store of value, and the payments industry continues to work on the efficiency, functionality and resilience of the Australian payments system, it is difficult to envisage cryptocurrencies presenting a compelling proposition that would lead to their widespread use in Australia."