China’s new sovereign digital currency could transform cross-border trade due to its ability to process payments and handle foreign exchange transactions simultaneously.
That’s according to the former head of the People’s Bank of China, Zhou Xiaochuan, who told the Shanghai Financial Forum that one of the major benefits of using a digital system is that it allows both payments and currency conversions to happen in real time.
“If the currency exchange is realized at the moment of a retail transaction, and there is oversight of that exchange … it brings new possibilities for interconnection,” he said as quoted by the South China Morning Post.
Zhou, who stepped down as the governor of China’s central bank in 2018, said it was important to note that the Digital Currency Electronic Payment (as it is formally known) was not intended as a replacement for globally accepted fiat currencies like the US dollar and the euro.
“If you are willing to use it, the yuan can be used for trade and investment,” he said. “But we are not like Libra and we don’t have an ambition to replace existing currencies.”
According to Zhou, rather than challenging foreign exchange regulatory frameworks and monetary systems, Beijing wanted to persuade consumers and overseas merchants to gradually accept digital yuan payments.
In May, the People’s Bank of China revealed plans to have its sovereign digital currency ready in time for the 2022 Winter Olympics. The digital currency was projected to replace cash in circulation. Limited trials have been already underway in major cities across the country.
China’s second-largest online retailer JD.com has recently partnered with the country’s central bank to test 20 million yuan-worth (over $3 million) of digital currency.
The e-commerce firm saw nearly 20,000 orders using the digital yuan this weekend during its Double Twelve shopping festival.
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