China’s response to Facebook’s Libra could be ‘Hong Kong style’ cryptocurrency, says ex-central bank governor
- Former People’s Bank of China governor Zhou Xiaochuan suggests Beijing could delegate issuance of digital currency to commercial entities
- Speech in Beijing this week shows that China is rethinking its digital currency strategy
China could learn a lesson for its possible digital currency issuance from the Hong Kong monetary system that allows “commercial entities” to issue banknotes backed by their own private currency assets, former central bank governor Zhou Xiaochuan said.
“Notes can be issued by the central bank or commercial entities,” read the transcript of Zhou’s speech at a symposium organised by the State Administration of Foreign Exchange in Beijing this week.
Notes can be issued by the central bank or commercial entities
Three Hong Kong banks – Bank of China (Hong Kong), HSBC and Standard Chartered – issue banknotes in their own names and hold US dollar currency reserves to back them. The Hong Kong Monetary Authority, the de facto central bank, ensures that the Hong Kong dollar is always worth around 7.8 to the US dollar. By following this currency peg model, China can avoid the “huge fluctuations” that plagued the early days of cryptocurrency development, Zhou said.
He did not elaborate on what kind of “commercial entities” might be appropriate to issue a digital currency in China.
Chen Dafei, a senior analyst at Orient Securities, said he had noticed Zhou’s reference to commercial entities, which he thought implied that technology firms such as Alibaba and Tencent might be allowed to participate in the issuance of an official digital currency, though in exactly what way was not clear.
Alibaba and Tencent already have well established digital payment networks with large number of users throughout China, namely Alipay and WeChat Pay. Alibaba is the owner of the South China Morning Post.