Digital yuan not a replacement for the US dollar: ex-PBoC governor

The digital yuan is not intended to be a replacement for the existing and globally accepted fiat currencies, such as the U.S. dollar. This is according to Zhou Xiaochuan, the former governor of the People’s Bank of China. He believes that the sovereign digital currency will, instead, offer a better alternative, especially in cross-border trade.

Xiaochuan was speaking at the Shanghai Financial Forum, Hong Kong-based newspaper the South China Morning Post reports. He told the audience that China had learned a lesson from the hostile reception Libra, now Diem, has received globally. This was because most governments viewed Diem as a threat to their sovereign currencies.

“Some countries are worried about the internationalisation of yuan. We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism,” he stated.

The PBoC doesn’t intend to replace globally accepted fiat currencies, he claimed, in particular the U.S. dollar and the euro. Rather, it intends to persuade users and merchants to use the digital currency electronic payment (DC/EP) voluntarily.

“If you are willing to use it, the yuan can be used for trade and investment. But we are not like Libra and we don’t have an ambition to replace existing currencies.”

The former governor, who stepped down in 2018, singled out cross-border payments as the sector the digital yuan is targeting the most. In China, most payments are already digital, with mobile payment systems like Alipay and WeChat Pay leading the digital initiative. However, the cross-border remittances sectors is still lagging behind, Xiaochuan claimed. The current systems, including foreign credit cards and China UnionPay debit cards, are “often not transparent or real time.”

“With a digital yuan, the problem of cross-border remittances is easily resolved.”

The PBoC has already revealed that it’s working with the Hong Kong Monetary Authority on cross-border payments with the DC/EP.

The ex-governor’s sentiments come at a time when the PBoC has stepped up its trials of the digital yuan as it readies itself for the launch. As CoinGeek reported, the most recent test was in Suzhou where residents made 20,000 transactions in just 24 hours. According to online retailer JD.com, the digital yuan payments took 0.5 seconds.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

See also: CoinGeek Live panel on The Future of Banking, Financial Products & Blockchain