China’s new bitcoin rival to displace banks and boost state surveillance, report says

China’s plans for a state-backed cryptocurrency could eliminate the need for bank accounts, new research has suggested.

A report published by Binance, the world’s largest cryptocurrency exchange, gave an overview of what China’s central bank digital currency is expected to look like and how it will compare to bitcoin and Facebook’s forthcoming Libra currency.

Based on details provided by central bank-related entities, the digital currency would be backed by reserves of traditional currency and would allow people to transfer funds even if they did not have a bank account.

Earlier this month, a senior official at the People’s Bank of China (PBOC) said the cryptocurrency was “close to being out”, though no specific dates have been given for its unveiling.

Deputy director of the PBOC, Mu Changchun, said the new digital currency would use a two-tier system, with the first tier connecting the PBOC with commercial banks and the second tier connecting the commercial banks to the retail market.

The report also explained how the as yet unnamed digital currency could be used to support and improve China’s already expansive surveillance network.

“The PBOC aims to improve the effectiveness of its monetary policy, while mapping out a more comprehensive picture of all individuals and businesses across China,” the report noted.

“Unlike privacy coins, central authorities would be able to gather information. Eventually, identities would likely be tied to respective individual wallets, hence making it fully non-anonymous, unlike bitcoin.”

For it to work on any significant scale, the new currency’s payment infrastructure will need to be able to process and handle a huge volume of transactions. The report suggests this would be somewhere in the region of 300,000 transactions per second, though currently no blockchains are capable of supporting such a high volume.

The cryptocurrency would also presumably require users to own smartphones, even if they don’t have bank accounts. Current estimates suggest that only around half of China’s 1.4 billion inhabitants own smartphones.

Like Facebook’s Libra, China’s new cryptocurrency is designed to bring key financial services to those without bank accounts.

The PBOC first started researching the potential of a new cryptocurrency in 2014, however according to Binance’s report, the development of the cryptocurrency was fast-tracked after Facebook first announced its plans for Libra earlier this year.

“Digital currencies are coming into the mainstream and international competition is heating up. Economies risk being disadvantaged if they are left behind,” Don Guo, CEO of Broctagon Fintech Group, told The Independent.

“China’s new currency could even rival Facbook’s notorious proposed cryptocurrency, Libra. This is largely because Facebook is not permitted in China, giving the government a potential monopoly over the market.”

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