China’s Digital Yuan Will Stress Payment and Retail, Says Former PBoC Head
China’s central bank digital currency will stress the retail use, said Zhou Xiaochuan, the former governor of the country’s central bank the People’s Bank of China (PBoC).
Zhou, known as the longest-serving head of the PBoC (from 2002 to 2018) and the most influential monetary economist in the country, outlined two types of implementations of central bank digital currencies (CBDCs) speaking at the Caixin Hengqin Forum.
“The first type, represented by China’s CBDC, emphasizes electronic payment and retail-oriented, while the second is intended for some international financial institutions to facilitate cross-border payment and remittance.”
According to Zhou, China will continue along the established path for its digital yuan, dedicated to domestic retail payment usecase. On this basis, it will gradually consider expanding the use of digital currency.
He also emphasized the country’s difficulty in testing out the new digital currency, noting that central banks, especially those of the super sovereign power, should be very cautious when choosing their development direction, “If it goes in the wrong direction, it can be very costly and even cause a credit crisis”.
This August, the country’s central bank said its digital yuan CBDC, or DCEP (Digital Currency/Electronic Payment), has been ready to roll out after five years in the making, and disclosed its design philosophy including two-layer operation system and retail-oriented usecase, which soon led to speculations that it may squeeze mobile payment giant Alipay and WeChat Pay (which account for 96 percent of the country’s mobile payment).
While according to Yi Gang, the current PBoC governor, digital yuan is intended for a replacement of part of M0 (cash in circulation), instead of replacement for M1 (M0+demand deposits) or M2 (M1+savings and time deposits). That means, the duo’s mobile payment business may not be affected.
China is believed to be the first to launch a digital currency successfully, along with its coming up to the stage, the country has been escalating its crackdown on cryptocurrency-related activities within its territory.