- A renowned Chinese bureaucrat talks about the digital yuan.
- The Digital Currency Electronic Payment would first be used in the domestic retail system.
- Different factors must be considered before implementing a national digital currency.
Zhou Xiaochuan, the president of the Chinese Finance Association and former governor of the People’s Bank of China (PBOC), recently said that the country would continue on its path to developing a digital yuan for retail and international settlements.
Currency as a Symbol of National Sovereignty
During the 2019 Caixin Hengqin Forum, Zhou discussed the influence that global central banks across the world would have in implementing digital currencies. According to the Chinese bureaucrat, the most powerful nations have to take a pragmatic and cautious approach when considering the direction in which they want to take their sovereign currencies.
He maintains that any wrongdoings and bad decisions can be catastrophic to a nation. People could lose trust in their currency, which would subsequently spark a significant financial crisis. Zhou affirmed that currencies are a “symbol of national sovereignty” that must remain intact for any country to thrive.
The Chinese economist explained that the implementation of the Digital Currency Electronic Payment (DCEP) would have two primary objectives.
The first one is emphasizing that electronic payments and digital currencies are favorable to support the retail system in China. Once this is achieved, the use of DCEP will gradually expand into the second goal – that is international settlements for financial institutions.
Another critical factor that Zhou takes into consideration for the implementation of the digital yuan is the relationship between monetary and fiscal policies.
The world is facing a low-inflation environment. In this case, we need to study monetary policy to determine what the purpose of monetary policy is, and whether to emphasize the independence of monetary policy more.
Zhou believes that a robust international capital market would be required to allocate global savings, improve efficiency and prevent market differentiation. And, the use of blockchain technology could bring many opportunities in the global financial industry that must be discussed in depth.
His remarks come amid news that the PBOC is working on issuing a national digital currency. Last week, China’s central bank said in a statement that they have been studying the implementation of a digital currency since 2014, and they are still in the process of research and testing.
Last modified: September 23, 2020 1:18 PM