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 on Sunday.
“For the internationalization of the renminbi, we have often said that it is a natural process, and our goal is not to replace the US dollar or other international currencies,” said Deputy Governor of the Bank of China Li Bo on Sunday. “I think our goal is to allow the market to choose, to 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 administration is stepping up its control over China’s progress towards the digital yuan, amid concerns that it could launch a long-term bid to replace the dollar.
The Biden team looks at a potential threat from China’s digital yuan
PBOC has been working on a digital currency since 2014 and its movements have increased the interest of central banks and policy makers, while the spread of cryptocurrencies has added the feeling that regular cash competitors could change the way the financial sector operates. PBOC is 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 e-yuan, at least for now, is primarily focused on household use,” Li said at the Boao Forum in southern China. “International interoperability is a very complex issue and we are not yet in a hurry to reach a special solution,” although there could be “long-term” cross-border use, Li said.
China Yuan digital will not overturn the dollar, says BOJ official
The central bank plans to test the cross-border use of the digital yuan at the 2022 Beijing Winter Olympics, where it could be used by both domestic users and athletes and visitors from abroad, Li said.
While the digitization of the yuan could benefit from its use in cross-border transactions, the key factor in determining the global role of the currency is whether China will relax its control over capital, 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, to use it. ”
China will also need to allow citizens to buy more foreign assets, further develop their financial markets and allow more exchange rate flexibility to promote the internationalization of the yuan, Shen said in an interview the forum.
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 noted that there are many problems with the use of digital currency across national borders. International use could affect the independence of monetary policy and it is important not to use it for crime, he said in the same group in Boao.
– With the assistance of James Mayger and Yujing Liu