China’s goal of internationalizing its currency is not to replace the dollar, and efforts to create a digital yuan are aimed at domestic use, a senior central bank official said Sunday.
“For the internationalization of the renminbi, we have said many times that it is a natural process, and our goal is not to replace the US dollar or other international currencies,” said Li Bo, Deputy Governor of People’s Bank Sunday said. “I think our goal is to make the market select and facilitate international trade and investment.”
China’s central bank is currently testing the use of a ‘digital yuan’ in various pilot programs across the country. A report earlier this week showed that the Biden government is stepping up its investigation into China’s progress towards the digital yuan, amid concerns that it could kick off a long-term bid to displace the dollar.
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The PBOC has been working on a digital currency since 2014 and its movements have increased interest among central banks and policymakers, while the spread of cryptocurrencies has a feeling that competitors of ordinary cash can change the way the financial sector works . The PBOC has come close to becoming the first major central bank to launch a virtual currency, launching a trial for consumers and businesses in 11 cities across the country.
“The motivation for the e-yuan, at least for now, focuses mainly on domestic use,” Li told the Boao Forum in southern China. International “interoperability is a very complex issue and we are not in a hurry to reach a specific solution yet,” although there may be a cross-border use in the long run, ‘Li said.
China’s digital yuan will not overthrow the dollar, says BOJ official
The central bank plans to test the cross-border use of the digital yuan during the Beijing Winter Olympics in 2022, where it could be used by local users as well as athletes and visitors from overseas, Li said.
While the digitization of the yuan may favor its use in cross-border transactions, the key factor in determining the currency’s global role is whether China will relax its capital controls, said Shen Jianguang, chief economist at JD.com Inc. “If you want to have a global reserve currency, you have to allow foreigners to own it, use it.”
China will also need to allow citizens to buy more foreign assets, further develop its financial markets and allow greater flexibility in the exchange rate to pursue the internationalization of yuan, Shen said in an interview on the forum.
The initial plans for a digital currency were not motivated by considerations of cross-border use, according to former People’s Bank of China Governor Zhou Xiaochuan, who noticed that there are many problems with the use of a digital currency across national borders. International use can affect the independence of monetary policy, and it is important that it is not used for crime, he said at the same panel in Boao.
– Assisted by James Mayger and Yujing Liu