China Completes First Cross-border Pilot of Digital Yuan With Hong Kong
The initial pilot for the digital yuan cross-border implementation between China and Hong Kong has been completed. The technical tests on the project were confirmed by the director of the People’s Bank of China (PBoC) research bureau, Wang Xin.
During a press conference on April 1, 2021, by the State Council Information Office of China, as reported by local news agency Sina Finance, Xin described the tests as “a routine work and a digital Renminbi test scenario”. This procedure is one of the major steps towards the secondary implementation of the proposed digital yuan which is yet to be launched fully by China.
Another Milestone Achieved
Before the test for cross-border implementation, the digital yuan project has undergone various tests across major cities in China. Results of these tests have been largely successful, suggesting that a full launch of the project could happen anytime between 2021 and 2022. Many people believe that the winter Olympics which is expected to kick off on February 4, 2022, could be an ideal period for the actual implementation of the digital yuan project.
Beyond the local financial industry, China is concerned with cross-border transactions within its economic jurisdiction. This is understandable, especially owing to the nation’s status as a leading economic hub in the world.
As a highly industrialized nation, there is a high volume of international trade that passes through China. Therefore, for both reasons of retaining more oversight on the transactions passing through its region, and creating a demand for its local currency, cross-border implementation of the digital yuan would surely attract so many benefits to the Asian giant.
Interoperability of CBDCs is Essential
Speaking recently during a seminar at a Bank for International Settlements, Mu Changchun, head of the PBoC’s digital currency research institute proposed a set of rules for CBDCs at the global level. Fundamental to these proposed rules is the need for global financial institutions to ensure the interoperability of national digital currencies.
According to Mu, the essence of these rules is to ensure that information flow and funds flow are synchronized. This, he said would facilitate regulators to monitor the transactions for compliance.
The control over money is a concern for central banks across the world. This is a growing situation, especially with the threat posed by Bitcoin and other private companies like Facebook that are developing their digital currencies. Therefore, creating CBDC in isolation may not be enough for countries, except they find suitable ways of interacting with each other.
Before this time, the PBoC joined the central banks of Hong Kong, Thailand, and the United Arab Emirates to explore the cross-border implementation of CBDC. Therefore, this latest move is a continuation of the process, which is also aimed at reducing the dependence on the dollar-dominated global banking system.
Several other central banks are exploring the option of a CBDC, including the European Central Bank. However, China remains the most advanced in the pursuit of establishing a national digital currency. Many people believe that it will be the first nation to launch one.