Digital currency will go through tests before issuance: PBOC Governor

China's central bank has said that its research into digital currency is still progressing, and reiterated that digital currency products need to be tested before they are put into use.

The Governor of the People's Bank of China, Zhou Xiaochuan, made the remarks when commenting on the prospects for the regulation and use of digital currencies in the country.

The People's Bank of China set up a research institute three years ago to conduct research into issues around the use of digital currency. 

And last year, a research project organized by the central bank was officially approved by the State Council.

According to Governor Zhou Xiaochuan, the Bank is currently engaged in research and development and working out solutions by tapping into the resources of the business community.

Zhou Xiaochuan, governor of the People's Bank of China (PBOC), answers questions at a press conference on financial reform and development on the sidelines of the first session of the 13th National People's Congress in Beijing, capital of China, March 9, 2018. [Photo: Xinhua]

"We could say that the development of digital currency technology is inevitable. In the future, the use of paper money and coins may gradually decrease and even one day disappears. This is possible."

But meanwhile, he stressed that the product must be carefully tested before they are put into use in order to reduce risks to the financial system.

"In this process, we need to pay attention to financial stability and prevent risk. In the meantime, digital currency must be able to guarantee the transmission mechanism of monetary policy and financial stability. We should also protect consumers. Some technical solutions are too risky. It may lead to loss for consumers. As a large country, we need to be cautious to prevent unfixable loss."

Bitcoin and ICO financing has been a hot topic in recent years. 

While these innovations are important of new financial tools, Zhou Xiaochuan says that caution is required.

"We encourage innovation. But beyond market incentives, we should look to the larger picture and prevent unexpected issues due to loopholes in policies."

The People's Bank of China suspended ICO financing last August, which was followed by its discouraging tone toward the direct transaction of Bitcoin and RMB. Digital currencies are not currently accepted as a means of payment by the banking system.

Regarding further steps towards digital currency regulation, Zhou said that regulators haven't decided on the details but revealed that one of their goals is to prevent these new technologies from becoming products for speculation.

Zhou also touched on changes to China's growth model, indicating that the country will pursue high-quality growth instead of growth requiring extensive capital input.

Regarding the further internationalization of China's currency, the RMB, Zhou said that it has increasingly been allowed to be used in international trade and investment activities. The RMB has also been included in the basket of currencies for the SDR, or Special Drawing Right. But Zhou said it may take a long time before the RMB is used widely by market players.