China’s former head of the central bank said digital yuan could be useful for cross-border trade and support its efforts to promote yuan as an international currency.
Zhou Xiaochuan, who stepped down as governor of the PBOC in 2018, spoke at the Shanghai Financial Forum on Friday. According to him, digital currency allows payments and currency conversions in real-time and “brings new possibilities for interconnection.”
“If you are willing to use it, the yuan can be used for trade and investment,” said Zhou, who has been a leading advocate for China’s sovereign digital currency. He also noted that the digital yuan isn’t intended to replace globally accepted fiat currencies like the US dollar.
“We are not like Libra and we don’t have an ambition to replace existing currencies.”
China has learned a lesson from Diem and took a more cautious approach. The idea is to persuade consumers and merchants to accept digital yuan payments as it quickly resolves “the problem of cross-border remittances.” He said.
“Some countries are worried about the internationalisation of yuan.”
“We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism.”
China is preparing for cross-border testing of digital yuan in partnership with Hong Kong. Additionally, over $3 million in digital yuan was airdropped to 10k residents of Suzhou on Friday. Trials are being run in other cities, including Chengdu, the Xiong’an New Area, and Hong Kong, in collaboration with companies like Didi Chuxing, Meituan, and Bilibili.
Central Banks Divided on Private Sector’s Role
According to a survey by the Official Monetary and Financial Institutions Forum (OMFIF), more than half of the central banks surveyed expect countries to collaborate with the private sector to build and run payments systems.
The central banking and economic policy forum found that central banks are split over whether to work with private sectors in payments as three-quarters of the banks said it was the state’s job to govern such systems.
The survey by the think tank involved 20 central banks and regulators in advanced and developing economies. Bhavin Patel, OMFIF’s head of fintech, said,
“It’s up to the central banks to balance how they approach collaboration – whether it’s setting joint projects together … or if it’s more just making sure that what comes to the market is properly regulated.”
The report was produced with fintech firms that include PayPal, Citigroup, Mastercard, and Novi, the digital wallet division of Facebook. Patel said,
“Regulators need to keep pace with these innovations. New, non-traditional payment entities will emerge as systemically important components of the financial system. Proactive central banks and regulators, keen to harness the benefits of payments innovation without undue policy risks, engage more with industry.”
Demand for more efficient payments is growing, a trend that has accelerated during the coronavirus lockdowns but regulators fear that the wide use of private currencies could lower their control over monetary policy. Just last week, German Finance Minister Olaf Scholz said,
“We must do everything possible to make sure the currency monopoly remains in the hands of states.”