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China's Digital Yuan not aimed at challenging US dollar, says former People’s Bank governor

It’s all about domestic efficiency, and if that helps China to become a bigger player then so be it

A former governor of the People's Bank of China has given a speech in which he suggested that China's Digital Yuan is not intended to increase China's influence over global financial systems.

Zhou Xiaochuan, who served as the Bank’s governor between 2002 and 2018, spoke on Saturday at the Tsinghua PBCSF Global Finance Forum. An unauthorised translation of the speech by Chinese journalist Zichen Wang reports that Zhou said China’s digital currency “is mainly targeted on the modernization of the domestic payment system, keeping pace with the digital economy and the Internet era, improving efficiency, and reducing costs, especially for the retail payment system”.

Replacing the US dollar’s role in international trade is not China’s plan, Zhou said, and added that the Digital Yuan also won’t immediately make China's currency more widely accepted abroad.

“The internationalization of the RMB depends more on institutional and policy choices, and more on the progress of China's reform and opening up, rather than on technical factor,” Zhou said.

The former governor said that the Digital Yuan is instead a big upgrade to China’s domestic payment systems, as it will give them a common backbone. Zhou said he doesn’t see the Digital Yuan as replacing electronic payment schemes such as those run by China’s web giants but will instead lubricate their operations by enabling often invisible improvements to settlements among schemes and banks.

Zhou was unconcerned by the fact the Digital Yuan will record all transactions, saying its design “expresses the idea of finding a balance between privacy protection and anti-money laundering and anti-drug dealing”.

Commentators should not use lack of anonymity “to belittle or attack” the currency, he said.

Zhou did, however, say that if the Digital Yuan succeeds it will improve the status of China’s currency and that won’t hurt its role in cross-border payments. But he re-iterated his belief that China’s policy settings and modernisation of its institutions will make a bigger difference to the Yuan’s acceptance around the world than its encapsulation as a digital currency. ®

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