Why Governments Want a Central Bank-Issued Digital Currency

On January 20, 2016, People’s Bank of China (PBoC) released an announcement on its website about its digital currency conference. At the conference, the PBoC urged its digital currency team to speed up effort and release its own digital currency quickly. Similarly, Bank of England, Bank of Canada, and some other central banks also expressed similar intentions to or claimed that they had considered issuing their own digital currencies. Since its creation, Bitcoin and other digital currencies have inspired the issuance of many private-issued and denationalized digital currencies. Now, it looks like that the central bank-issued digital currency is also becoming a global trend.
Why do central banks, which already fully control the issuance of currencies, need to bother with its own digital currency?
Well, this question is both interesting and important. To answer it, we need first to understand some basics, the Digital Currency 101:
Unlike Internet banking and third-party payment services using traditional electronic payment tools to facilitate fiat money transmission, digital currencies represent a new class of technology. They are developed out of a number of brand new and groundbreaking technologies – they are not tools to transmit money; they are arguably money themselves. Among them, one particular kind utilizes modern cryptography, earning its name crypto-currency. Bitcoin is an example of this kind of digital currency. After its creation, the idea inspired and led to many similar systems. Some commercial banks and central banks also work on their own digital currencies. Depending on their issuers, we can divide all digital currencies into three categories:
1. Digital Currencies Issued by Non-Financial Institutions
In November, 2008, someone under the alias of Satoshi Nakamoto invented a new technology called Blockchain and for the first time introduced the concept of a peer-to-peer electronic cash system, also known as Bitcoin.1 On January 3, 2009, the code was released. Due to its peer-to-peer and electronic nature, digital currencies can be transferred directly between two individuals without a centralized clearance house. Thus, it is a fast, low-cost, and nationality-neutral payment system.

This post was published at Ludwig von Mises Institute on September 9, 2016.