China’s goal for internationalizing its currency is not to replace the dollar, and efforts to create a digital yuan are focused on domestic use, a senior central bank official said Sunday.
“Before the internationalization of the renminbi, we have often said it is a natural process, and our aim is not to replace the US dollar or other international currencies,” said Deputy Governor Li Bo of the People’s Bank of China on Sunday. “I think our goal is to let the market choose, to facilitate international trade and investment.”
China’s central bank is currently testing the use of a “digital yuan” in several pilot programs around the country. A report earlier this week showed that the Biden administration is increasing its investigation of China’s claims towards the digital yuan out of concern it could launch a long-term bid to supplant the dollar.
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The PBOC has been working on a digital currency since 2014 and its moves have sparked interest from central banks and policymakers, while the proliferation of cryptocurrencies has contributed to a sense that regular cash competitors can change the way the financial industry operates. The PBOC is getting closer to becoming the first major central bank to launch a virtual currency and pilot it for consumers and businesses in 11 cities across the country.
“The motivation for the e-yuan is, for the time being at least, mainly focused on domestic use,” Li said at the Boao Forum in South China. International “interoperability is a very complex issue and we are not yet in a hurry to find a particular solution,” although there could be “long-term” cross-border use, “said Li.
China’s digital yuan will not topple the dollar, BOJ Official says
The central bank plans to test the cross-border use of the digital yuan at the 2022 Winter Olympics in Beijing, where it can be used by domestic users as well as athletes and visitors from abroad, Li said.
While the digitization of the yuan could benefit its use in cross-border transactions, the most important factor in determining the currency’s global role is whether China will ease its capital controls, said Shen Jianguang, chief economist at JD.com Inc. To have a global reserve currency, you must allow foreigners to hold and use it. “
China will also need to allow its citizens to buy more foreign assets, further develop its financial markets and allow more exchange rate flexibility to push for the internationalization of the yuan, Shen said in an interview at the forum.
According to former People’s Bank of China governor Zhou Xiaochuan, the original plans for a digital currency were not motivated by considerations of cross-border use. noted that there are many problems with the use of digital currency across national borders. International use can undermine the independence of monetary policy, and it is important that it is not used for crime, he said on the same panel in Boao.
– With help from James Mayger and Yujing Liu