PBoC Clarifies e-CNY Internationalization in Latest Progress Report
China has sought to address the attention its planned release of a digital yuan (e-CNY) and its likely use for cross-border payments to promote an internationalization agenda has generated.
In a People’s Bank of China (PBoC) latest progress report on the digital currency published on July 17, China cites exploring the improvement of cross border payments as one of the objectives for introducing the e-CNY but it’s presently designed mainly for domestic retail payments.
It highlights that cross border payment has various complicated issues such as monetary sovereignty, foreign exchange policies and arrangements, and compliance requirements and “the internationalization of a currency is a natural result of market selection.”
The disclosure is supposedly to clarify some of the concerns that have been attributed to the future use of the digital yuan at a global level.
About $5.3 bln has been reported transacted so far in the e-CNY trial that has been going on across major Chinese cities, a phase the PBoC notes in the report has helped them to explore the innovation of e-CNY application models.
According to a 2012 Asian Development Bank Institute working paper, the internationalization – the process of capital account liberalization – is supposed to help reduce exchange rate risks for Chinese firms and reduce transaction costs in trade leading to a further expansion of international trade. It is also to improve the funding efficiency of Chinese financial institutions so that they can increase their international competitiveness and help China reduce its need to hold the US dollar as a medium of exchange and a store of value accordingly.
Since China’s assumed effort to internationalize the yuan with the e-CNY has been in the news for a while, there have been suggestions that it seeks to replace the US dollar as the most used global currency. But China denies the claim.
The denial didn’t stop the internationalizing of the yuan being deemed as a realistic attempt though based on China’s being the country with the largest GDP in terms of purchasing power parity and biggest or major trade partners in over 120 countries.
There have also been concerns over data privacy issues especially for non-Chinese who may have to transact with the e-CNY. “Foreign residents temporarily traveling in China can open an e-CNY wallet to meet daily payment needs without opening a domestic bank account,” the research progress at the time said.
The PBoC’s disclosure raised data protection concerns. However, as maintained previously, the latest report reiterates that the e-CNY system will collect less transaction information than traditional electronic payment providers like AliPay and WeChatPay, China’s largest mobile payment service providers.
It adds that they will not provide information to third parties or other government agencies unless stipulated otherwise in laws and regulations as the e-CNY follows the principle of “anonymity for small value and traceable for high value.” The digital currency also “attaches great importance to protecting personal information and privacy,” the report says.
Nonetheless, the PBoC says it is willing to participate actively in international exchanges of views on digital fiat currency and discuss standards setting openly to jointly advance the development of the international monetary system. Research and development will continue on but no set date has been fixed for its public rollout.