China’s goal to internationalize 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 that our goal is not to replace the US dollar or other international currencies,” Deputy Governor of the People’s Bank of China Li said on Sunday. Bo. “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 several pilot programs across the country. A report earlier this week showed that the Biden administration is stepping up control of China’s advances toward the digital yuan amid concern it could launch a long-term bid to shift the dollar.
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The PBOC has been working in a digital currency since 2014 and its movements have increased interest among central banks and policymakers, while the spread of cryptocurrencies adds to the feeling that regular cash competitors could change the the way the financial sector works. The PBOC has come close to becoming the first major central bank to launch a virtual currency, developing a test for consumers and businesses in 11 cities across the country.
“The motivation for e-yuan, now at least, is mainly focused on domestic use,” Li told the Boao Forum in southern China. “International interoperability is a very complex issue and we are still in no hurry to come up with any particular solution,” although there could be “long-term” cross-border use, Li said.
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The central bank plans to test 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 its use in cross-border transactions, the key factor in determining the global role of the currency 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 keep it and use it.”
China will also need to allow its citizens to buy more foreign assets, further develop its financial markets and allow for greater exchange rate flexibility to drive the internationalization of the yuan, Shen said in a forum interview.
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 pointed out that there are many problems related to the use of a digital currency at national borders. International use could affect the independence of monetary policy and it is important that it is not used for crime, Boao himself told the group.
– With the assistance of James Mayger and Yujing Liu