China’s new supreme digital currency could be a blessing for cross-border commerce while promoting Beijing’s efforts to expand the digital yuan as an international currency, the former head of the country’s central bank said on Sunday.
Addressing at the Shanghai Financial Forum, Zhou Xiaochuan, who stepped down as governor of the People’s Bank of China in 2018, stated that one of the vital advantages of using a digital system is that it enabled both payments and currency conversions to happen in real-time.
He stated that,
“If the currency exchange is realized at the moment of a retail transaction, and there is oversight of that exchange … it brings new possibilities for interconnection.”
A principal supporter for China’s sovereign digital currency plan, Zhou announced it was essential to note that the Digital Currency Electronic Payment – as it is officially known – was not meant as a replacement for globally accepted fiat currencies like the US dollar and the euro.
“If you are willing to use it, the yuan can be used for trade and investment,” he said. “But we are not like Libra and we don’t have an ambition to replace existing currencies.”
He pointed to the blockchain-based payment system, and cryptocurrency was introduced and backed by social media company Facebook. Asserted just last year, and formerly known as Libra, it modified its name to Diem at the beginning of this month.
Rather than confronting foreign exchange regulatory frameworks and monetary systems, Beijing wanted to persuade consumers and overseas merchants to gradually accept digital yuan payments, Zhou said.
China had learned a lesson from the Libra/Diem system’s reaction – policymakers worldwide feared it would disrupt financial networks and erode monetary sovereignty – and was therefore taking a more cautious approach, he said.
He stated that,
“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.”
This was the first time Zhou had spoken so openly about China’s ambitions for its sovereign digital currency. He appeared convinced in its capacity to carve a position adjacent to established payment systems.
Most retail cross-border payments involving Chinese consumers or vendors are already cashless. Settled via credit cards or payment services like Alipay and WeChat Pay, a digital yuan offered additional benefits. Zhou stated.
While foreign credit cards and China UnionPay debit cards could manage foreign exchange transactions, they were “often not real time or transparent“, he said.
But with a digital yuan, “the problem of cross-border remittances is easily resolved“.
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