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China outpacing world on digital currencies

Illustration: Rebecca Zisser/Axios

China may be taking the lead in the next evolution of money, as representatives of the country's central bank say a state-backed digital currency could be ready this year.

Why it matters: China already is outpacing the U.S. and much of the developed world in mobile payments, and a new digital currency that authorities say would be like cash and accepted everywhere would put China miles ahead in the currency space.

  • The Fed, ECB and numerous other central banks have stepped up efforts to study digital currencies recently but remain years away from being able to produce or regulate them.
  • China also is working to move away from the dollar as the global standard for payments, and a digital currency could provide another avenue for that process. (Its central bank and others have been buying fewer dollars while purchasing historically large quantities of gold for much of this year.)

Agustín Carstens, general manager of the Bank for International Settlements, told the Financial Times in June that central banks around the world may need to issue digital currencies sooner than expected because of growing demand and increasing reliance on for-profit banks and the private sector to provide payment options.

What they're saying: “Why is the central bank still doing such a digital currency today when electronic payment methods are so developed? It is to protect our monetary sovereignty and legal currency status,” said Mu Changchun, deputy director of the People’s Bank of China’s payments department, per Reuters. “We need to plan ahead for a rainy day.”

How it would work: China's digital coin would resemble Facebook's Libra, Mu said. As proposed, the Libra would be backed by a reserve of real-world assets, including bank deposits, and overseen by a network of partners through its Calibra blockchain platform.

  • China's digital currency would be available on Tencent's WeChat and Alibaba's Alipay platforms, but would be overseen and issued by the central bank, and could function without an internet connection, Mu said.
  • That would secure the currency in case of emergencies such as a loss of power or if a private company issuing the currency went out of business.