Central bank-backed entity to promote application of blockchain in China

The People's Bank of China is keen to launch its own digital currency. Photo: Bloomberg

The Digital Currency Research Institute (DCRI) affiliated to the People's Bank of China (PBC), the country's central bank, has reportedly set up a financial technology company in Shenzhen to promote the application of blockchain technology in trade and finance.

The move marks a heightened effort by the PBC to tap into the blockchain sector, as the technology is considered to be key to creating a sovereign digital currency. The central bank has been developing a government-endorsed prototype cryptocurrency, which it says features higher security levels than private digital currencies like Bitcoin, whose issuance, management and exchange is decentralized, thus carrying higher financial risks.

Along with the establishment of the financial technology company, the DCRI has also started the trial operation of a platform which is aimed at using the blockchain technology to facilitate cross-border trade and financing within the Guangdong-Hong Kong-Macau Greater Bay Area, which the Chinese government wants to build into a world-class integrated economic and business center.

The blockchain-powered platform, which the DCRI develops in partnership with five banks, aims to be applicable nationwide and even across the globe.

At the early stage of operation, the platform will offer services such as accounts receivable financing, cross-border payments and real-time monitoring of trade and financial activities.

The platform will also promote the formation of a credit mechanism which can meet the demand of small and medium-sized enterprises for fundraising and can help banks verify the authenticity of trade information.

Di Gang, deputy director of the DCRI, wrote in an article published in August that the blockchain technology "will typically be used in areas including trade financing, supply chain financing and digital bills", which will be important for financial risk control and the settlement of problems of small and medium-sized enterprises.

According to the Top 100 Patent Owners list jointly released by the IPR Daily and incoPat, the number of patents owned by three PBC-affiliated entities including the DCRI reached 68 in 2017, surpassing any other patent holder in the world in the same year. China's e-commerce giant Alibaba Group ranked first in the list with 43 patents in 2017.

Another major task of the DCRI is to develop a digital currency whose circulation and management can be totally controlled by the central bank.

So far, the DCRI has applied for 71 patents, most of which are related to digital currency, according to statistics from the National Intellectual Property Administration.

However, in China, the government has tightened crackdown on local and overseas transactions of digital currencies and initial coin offerings, which it considers as tools used by unauthorized operators to illegally raise money from investors.

The latest of such moves is the blocking of numerous influential public accounts engaged in spreading knowledge and information about blockchain and cryptocurrency on the popular social media platform WeChat.

Although it is uncertain whether WeChat followed the authorities' order to do it, it could still be a sign of stricter government supervision on virtual currencies.

Also, recently, Beijing's Chaoyang district banned office buildings, hotels and department stores from hosting cryptocurrency-related marketing for the purpose of protecting people's property rights, maintaining the legal tender status of the yuan and preventing risks of money laundering.

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