Many Chinese banks are working on blockchain projects, but the top lawyer at their regulator downplayed the potential for the technology when it comes to functions that could replicate or disintermediate the role of the state-run banking system.
Sheng Songcheng, counselor to the People’s Bank of China, said on Friday, June 15, that blockchain was better suited to areas other than financial services. Sheng, an economist, has also served as director-general of the central bank's financial survey and statistics department.
He made his remarks at a China fintech and blockchain conference in Shenzhen organized by an arm of the Ministry of Industry and Information Technology, with an audience of blockchain developers and large tech companies such as Baidu and JD.com.
Sheng acknowledged blockchain tech is useful for authenticating information.
I haven’t seen any good use case so far
But he says this is no replacement for a bank’s function as a provider of credit. State-owned banks issue credit, guided by the PBoC, to provide capital and influence interest rates.
Distributed-ledger technology cannot replace banks’ roles as providers of credit, or regulators of the economy. “I haven’t seen any good use case so far,” Sheng said.
A provider of efficiency
Proponents of blockchain also site it as a provider of efficiency, by eliminating intermediary functions. But Sheng interpreted this argument as an attempt to replace the government’s existing infrastructure for clearing and settlement.
Virtual currency is not real currency
“The current payment system is safe enough, and can support high transaction volumes,” he said. The same goes for its compliance controls against money laundering and tax evasion.
In accordance with previous PBoC statements about crypto-currencies, Sheng said, “There is no place in currency for blockchain...virtual currency is not real currency” because there is no state credit to back it up. The exception could be if the state issued its own digital currency, in which the government’s credit provides value to an e-renminbi.
Sheng says blockchain is better suited to other economic activities, such as authenticating artworks or validating intellectual property rights.
“A lot of blockchain related conferences and articles stir up speculation,” Sheng said.