When Satoshi Nakamoto introduced Bitcoin to the world in 2008, he or she or they (the mystery endures) pitched it as a way to end the power of central authorities in finance. Ten years on, the Chinese government is adapting the ideas behind Bitcoin to do the exact opposite.
The People’s Bank of China, the country’s central bank, plans to introduce a digital currency of its own. But unlike the decentralized blockchain-based offerings, this one could give Beijing more control over its financial system. It would enhance the PBOC’s ability to root out risks and crack down on money laundering. It could also give the government an unprecedented window into individuals’ private lives.
The currency would initially replace cash, PBOC Deputy Governor Fan Yifei wrote in an article earlier this year. According to patents registered by the central bank, consumers and businesses would download a mobile wallet and swap their yuan for the digital money, which they could use to make and receive payments. Crucially, the PBOC could also track every time money changes hands. Fan suggested in his article that banks would need to submit daily information on transactions and that there would be caps on transactions by individuals. The PBOC declined to comment.
The project was started by the former governor of China’s central bank, Zhou Xiaochuan, who retired in March. He decided to develop the digital currency in part to protect China from having to adopt a technology standard, like Bitcoin, designed and controlled by others. China banned cryptocurrency exchanges and initial coin offerings last year.
Since 2016 the PBOC’s software developers have registered 78 digital currency patents, according to a Bloomberg News tally of Chinese intellectual-property filings. As of August, the bank had 44 blockchain-related patents, ranking fifth in the world, according to the Chinese trade publication IPRdaily.
If China’s leaders sign off on the currency, its introduction will likely be gradual. Early adopters would be barred from using it on investment products, a person familiar with the central bank’s plans says, which would make the impact on monetary policy negligible.
Yet PBOC patent applications suggest the central bank might eventually go way past tracking everyday transactions. Filings made public in October describe a currency that would require banks making loans to input details about borrowers and interest rates before funds could be transferred. Banks attempting to lend to companies blacklisted by the government would be automatically prevented from doing so. The patents don’t mention denying loans to individuals, but critics worry such technology could also be used to punish political dissidents.
The PBOC may still be working some of these details out for itself: The central bank posted six job openings at its Digital Currency Institute in Beijing in October, seeking candidates with expertise in everything from software and encryption to law and economic research.