China intended to issue a digital currency as soon as possible, the central bank said, a move that could help the yuan offset the global dominance of the US dollar and limit capital outflows.
The announcement by the People's Bank of China came as it wrapped up a symposium on digital currency in Beijing, where it discussed issuance frameworks and related technologies such as encryption.
In a statement summarising the forum and posted on its website, the bank said the currency could reduce the costs involved in circulating banknotes, facilitate economic activities and help combat money-laundering. A virtual currency would also help the bank improve control of the money supply and payment efficiency, it added.
Taking the step would thrust China into largely uncharted waters. Ecuador last year became the first nation to issue state-backed digital money. All of the banks in the tiny South American country have been told to get behind the push.
Hao Hong, chief China strategist at the Bank of Communications, said China's attitude towards digital currency had been shifting. The central government came out sharply against Bitcoin in 2013, forbidding payment companies from accepting it. It later relented somewhat, and allowed Bitcoin exchanges, but banks must still give it wide berth.
"The attitude towards digital currency in China has been shifting, it has been surprising," Hong said. Back then it was quite hostile. Now, facing capital outflow pressure, a digital currency would make it easier to check the capital flow."
State-backed cryptocurrency would also allow the yuan to challenge the hegemony of the greenback, he said, but cautioned that would take time.
"The US dollar has the luxury of pricing everything, every commodity, in US dollars. That is why it can maintain a power grip on the global economy."
PBOC chairman Zhou Xiaochuan, who attended the forum in Beijing, floated the idea of an alternative to the American dollar in 2009, saying it could be a "super-sovereign" currency based on the reserve asset of the International Monetary Funds. The IMF announced the renminbi would take its place alongside the US dollar, the yen, the British pound and the euro that comprise the special drawing rights basket. But even with yuan's inclusion, China's efforts to dethrone the dollar in the existing international currency system have made very little progress.
Payments for goods and services are increasingly becoming digital with new applications and online players jostling for a position in the potentially lucrative sector.
Zhang Weichao, the director of "mining" at Huobi.com, China's major platform for virtual currency trading, said a cryptocurrency might be popular with consumers. "It can be popular among the people – if it's endorsed by the government and convenient to use with new technologies."
Hu Zhibing, the chief operating officer at Haoyouqian.com, a crowd-funding startup in Beijing, said digital money is "definitely the future".
"China must seize the first-mover advantage to get on board – the central bank would be a sinner of the whole nation if other countries moved ahead while China lagged behind."