China’s digital yuan not designed to replace US dollar: former central bank governor

China’s experimental digital yuan is not designed to replace US dollar’s global dominance, former central bank governor Zhou Xiaochuan said on Saturday, clearing up some misunderstandings about the country’s push for its digital sovereign currency.

Media discussions on the digital yuan, known as e-CNY or Digital Currency Electronic Payment (DCEP), especially in foreign media coverage, tend to give rise to some misguided understandings, Zhou said in a keynote speech at the Tsinghua PBCSF Global Finance Forum in Beijing.

The two-day forum, held both online and in-person, runs through Sunday.

There are many foreign media reports that the DCEP push, however strong it might be, can’t replace the dominance of the US dollar, he went on to say, refuting the proposition.

The DCEP project, primarily built on modernizing the domestic payment system and playing catch-up in the era of digital economy, envisions raising efficiency and reducing costs and serving the retail payment system in particular, said the former head of the People’s Bank of China (PBC), the country’s central bank.

The original purpose of DCEP is not supposed to replace the US dollar as a global reserve and payment currency, according to Zhou, now president of the China Society for Finance and Banking and honorary dean of Tsinghua PBCSF.

There are also conjectures in the foreign media that link the digital yuan closely to the yuan’s internationalization, claiming that DCEP doesn’t help much when it comes to globalizing the yuan.

Efforts to modernize and digitize the yuan’s payment system would, to a certain extent, help in increasing the yuan’s status. However, the yuan’s internationalization is contingent upon the country’s institutional and policy choices and its reform and opening-up progress, Zhou remarked, reckoning technical factors to be only helpful to some degree.

The influential policymaker, who had headed PBC for over 15 years before being replaced by current central bank governor Yi Gang in 2018, also rebuffed claims that the PBC-backed DCEP is intended to become a replacement for third-party payment solutions.

The DCEP’s research and development team under the auspices of the PBC is composed of major commercial banks, telecom carriers and third-party payment institutions. They are all in the same boat and some discrepancies and arguments on some occasions aren’t tantamount to infighting or moves aimed at replacing each other, he stressed, comparing the teamwork to cooperation between players in volleyball.

The baseless accusations such as infighting indicate inadequate understanding of DCEP’s R&D plans and trials, Zhou continued.

On top of that, the digital yuan’s “controllable anonymity” is justifiable, Zhou argued, citing a balance being sought between the digital yuan’s privacy protections and clampdowns on money laundering, drug deals and cross-border gambling.

In addition to privacy protection, there needs to be necessary monitoring of certain activities, he commented, defending against the use of privacy concerns as an excuse to derogate the progress with DCEP.

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