In line with a strategy for ensuring that the value of its currency is protected against mainstream cryptocurrencies including Bitcoin (BTC), Ripple (XRP) and Ethereum (ETH), the Chinese Central Bank (CCB) has hinted that it plans to develop a digital currency, under its own control and regulation, according to an announcement on its website.
In the announcement it declares that during the recently-convened Currency Gold and Silver conference on 28th of March 2018, achievements made in the monetary silver and gold work were discussed.
Fan Yifi of the CCB, gave a speech where he stated that PBPC (People’s Bank Party Committee) and People’s Bank monetary gold and the silver department would continue to promote and reform critical areas of the country’s currency and reserves.
It will do this by remaining geared towards the livelihood, market, and problem-oriented practices, and will continue its record of changing the practical philosophy, methods, and style to achieve these aims.
He went on to say that the typical business environment is continually changing due to many influences, including the development of digital economies, changes to fiat currencies, and diversified payment methods. Yifi further added that these changes will most likely impact the country’s currency circulation, the Yuan (RMB), and that The CCB needs to innovate with the market, whilst retaining its sole responsibility of monitoring the economy of China, reserves, cash in the circulation, and protecting citizens’ interests.
From this statement, it appears China is striving to create its very own state-controlled cryptocurrency. A potential blueprint for how this will work is not made public yet, but the coin is dubbed the Basecoin. This cryptocurrency aims to be stable, retaining its value notwithstanding the usual market fluctuations, particularly given that cryptocurrencies are quite volatile.
For example, if you bought Bitcoin at its $20,000 peak in December 2017, one Bitcoin would have bought you a nice car. If that car dealer had kept the 1 BTC in a wallet, it would now be worth just $6,900, less than the third of its December 2017 value. A drop in a currency’s purchasing power like this is called inflation.
In an attempt to maintain value, and fight inflation, Basecoin utilizes an algorithm that pegs it to a steady currency like the USD (US Dollar), similar to how Tether (USDT) works.
As it develops, Basecoin will get pegged to a CPI (Consumer Price Index), similar to how the central banks primarily control fiat currencies to hit the inflation targets. This prevents situations of hyperinflation, like when Zimbabwe’s Central Bank had to recognize nine foreign currencies as a legal tender (including the US Dollar, the Euro, and the British Pound) as its currency was out of control.
In Venezuela, the Petro cryptocurrency is pegged to the value of one oil barrel and backed by oil reserves of the country. On top of that, the Venezuelan State issues it to encourage the development of a transparent, independent and open digital economy. It is also intended to promote a financial system that’s fairer, contributing to development and trade.