Like many other central banks, the one in China also wants to embrace blockchain. Just recently, it has finished work on a blockchain-based system that digitizes checks issued by domestic businesses.
In an op-ed at a local news source – deputy head of the digital currency research lab at the People’s Bank of China, Di Gang, said the department has “completed the infrastructure of a system that issues digital checks based on a blockchain with smart contracts technology.”
The work, according to Di, comes on the heels of a year-long R&D process that started in 2016 when the lab first announced plans to use blockchain to solve the issue of check fraud in the Chinese market. That led to some serious work and in January 2017, the agency had successfully tested a prototype in a virtual environment.
Physical business checks in China function like money orders that can also be exchanged with other entities. The problem is that the existing system involves a large number of intermediaries that issue checks, which further increases the risk of fraud. From there, these fake checks can circulate among commercial banks and potentially undermine the country’s financial integrity.
Di said the agency’s blockchain platform can essentially tokenize checks, while transactions can be controlled via smart contracts. This, he believes, will provide regulators with a transparent overview of the entire life cycle of a digital check, regardless of whether it is being redeemed for cash or being used as a security to back up other corporate assets.
“Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily,” Di said. “Even for code updates, regulators will have full access to the record, which increases regulatory efficiency and reduces the cost by removing a manual cross-checking process for transactions.”
This latest development by China’s central bank comes on the heels of the country’s president, Xi Jinping, openly praising blockchain technology during a recent speech at the Chinese Academy of Sciences.
“A new round of scientific and technological revolutions and industrial changes is reconstructing the global innovation map and reshaping the global economic structure… The new generation of information technology represented by artificial intelligence, quantum information, mobile communication, internet of things, and blockchain is accelerating breakthroughs in its range of applications,” he said.