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China’s PBOC plans pilot projects on digital currency and FinTech innovation

China’s central bank is mulling a plan to pilot digital currency in two major cities- Shenzhen and Suzhou soon, according to reports emerging out of that country. A Beijing-based financial news magazine Caijing was first to report the development.

Quoting Caijing, another digital news portal for cryptocurrencies The Block Crypto said that the People’s Bank of China (PBOC) would soon test its much-anticipated digital currency electronic payment (DC/EP) in the cities of Shenzhen and Suzhou.

Blockchain Technology

The news comes a month after the Chinese President Xi Jinping hailed blockchain technology as an “important breakthrough” and that should be developed in the country to launch a state-owned digital or cryptocurrency.  Many cryptocurrencies are decentralised networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.

PBOC has partnered with seven state-owned companies to roll out the test, including four commercial banks and three telecom giants, the report stated. It further added that the pilot would focus on sectors such as transportation, education, commerce, and medical care initially.

Asia’s largest economy would be the first to launch its digital currency that would be tested on a small scale by the end of this year before a nationwide launch in 2020. Experts believe that social media giant Facebook’s cryptocurrency project, Libra, could have triggered the move by China.

Clampdown on crypto-exchanges

It is also important to mention here that while the Chinese government is upbeat on digital currency and blockchain, the country’s regulatory regime is not favouring the cryptocurrency exchanges.

According to reports in November, at least five local exchanges, including leaders– Binance and Tron, have halted operations in that country following a series of warnings from the financial watchdogs. Binance now operates from Malta. However, China has been warning its public and investors since 2017 against trading in cryptocurrencies such as Bitcoin, Ethereum and Ripple amongst a dozen others.

This clampdown by China is similar to that of India wherein the country’s banking regulator the Reserve Bank of India had barred banks and financial institutions from dealing with crypto exchanges and entities in 2017 thus crippling a thriving crypto ecosystem then. However, the Indian government has also announced that it was planning to launch its cryptocurrency soon and favoured the blockchain technology.

FinTech innovation pilot

In another development, People’s Bank of China is looking to develop inclusive and prudential regulatory tools for Fintech innovation in a bid to proactively improve the professionalism, unification and penetration of financial regulation, according to the bank’s official website.

PBOC plans to launch a pilot project on FinTech innovation in Beijing Municipality and explore regulatory tools consistent with China’s realities and connected to international standards, and guide licensed financial institutions to leverage modern information technology to enhance quality and efficiency of financial services on the basis of compliance with laws and regulations as well as protection of customer rights and interests, so as to foster a faithful, secure, inclusive and open environment for the innovation-driven development of Fintech.

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