China’s central bank has recently announced the creation of a blockchain-based system, one that digitizes the cheques issued by domestic businesses.
An op-ed published by a local news source explains that the bank’s digital currency research lab has “completed the infrastructure of a system that issues digital cheques based on a blockchain with smart contracts technology.”
According to Di Gang, deputy head of the department at the People’s Bank of China (PBoC), the realization of the project follows a year-long Research and Development (R&D) process, in which the lab explored numerous ways it could potentially use the technology to solve the issue of cheque fraud within the country.
Physical business cheques in China currently function in much the same way as money orders, with the only real difference being that they can not only be used to claim funds from a bank, but also exchanged for other entities too.
The problem this system creates is that large numbers of intermediaries are thrust into the role of traditional banks in terms of issuing cheques, creating an increased risk of fraud. This means that fake cheques are able to circulate amongst commercial banks, thus undermining the financial integrity of the country.
Built to circumvent such problems, the blockchain-based platform developed by the People’s Bank of China instead acts to tokenize cheques, with transactions controllable via smart contracts.
According to Mr Gang, a major benefit of this system is that it provides regulators with an increasingly transparent overview of the life cycle of the digital cheque, so that whether it’s redeemed for cash or used as security to back up corporate assets, its provenance is far easier to trace.
As he explains:
“Once the smart contract rules are set in the blockchain, any participant cannot alter the system easily. 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.”
Featured image from Max Pixel