Upon issuance, the new currency will be classified as M0 (central bank-issued cash). The government appears to be fine-tuning details but has no date for the official launch yet.
The deputy governor of the Central Bank of China (PBoC), Fan Yifei, recently stated that the digital yuan will meet all the requirements that will allow its acceptance as legal tender. He also said that it will compensate for all the functions of China’s fiat currency and will have the same regulation as cash.
According to the vice president, China’s new central bank digital currency (CBDC) will circulate as M0 (central bank-issued cash). This fact means that it will be part of the supply of notes and coins of the Asian country, for which the central bank will fully control it.
The PBoC is currently coordinating the way that it will handle cash, to be able to centralize the issuance, and manage the digital yuan, explains Yifei. Besides, they will formulate unified business standards, along with technical specifications, safety standards, and application standards. Likewise, they evaluate the future of the registration, monitoring, and analysis of the trading of the CBDC.
The official notes that this process includes the management of digital wallets and the adaptation of the infrastructure to achieve interoperability between the operating institutions. With this, they seek to guarantee the stable and orderly circulation of the digital currency.
The intention of the PBoC to maintain absolute control over the issuance and infrastructure of the new digital currency appears in previous publications. The distribution of the CBDC to the public can only occur through commercial banking.
Evolution of Chinese Legal Tender Currency
The PBoC senior official mentioned the principles that will govern the operation of the digital yuan. China’s central bank views the issuance of the CBDC as a digital representation of cash.
“Technology and demand drive the historical evolution of legal tender, so a currency gradually goes from physical to digital form,” Yifei says. For that reason, the regulation of the digital yuan will be under the laws related to cash and must comply with all the regulations related to the administration of this type of money.
The design of the digital yuan is to convert it into legal tender, emphasizes Yifei. He states that it will also be possible to use the digital renminbi (yuan) to pay “all public and private debts within our territory,” depending on all the provisions governing China’s fiat currency. He stressed that the acceptance of the digital currency throughout the country will be mandatory, and so “no unit or individual can refuse to accept it if it meets the conditions.”
Since its regulation is in line with China’s current money regulations, the digital yuan must also comply with anti-money laundering and counter-terrorist financing (AML/CFT) policies. To do this, it includes “a controllable anonymity system”, which will be able to track and monitor transactions, and thus avoid money laundering.
Everything seems to indicate that the Chinese government is fine-tuning the details for the design and final issuance of the digital yuan, but it has not yet announced the launch schedule. The PBoC and a group of commercial banks have been conducting tests in various cities in China for several months.
By Alexander Salazar
