What should China do as G7 starts targeting digital yuan?

By Chen Bo Source: Global Times Published: 2020/7/29 18:46:40

Photo: IC

Group of 7 (G7) countries are reportedly promoting cooperation on central bank digital currencies (CBDC) and will discuss the issue at the annual G7 summit that is scheduled for late August or early September. The topic is China's lead in CBDC research and its potential challenge to the US dollar's dominance, according to media reports. The topic is full of hostility against China.

China's digital yuan has already started trials in small amount retail scenarios in southern cities such as Shenzhen and Suzhou. But even such small-scale domestic trials have already been overly interpreted and politicized by the G7. It is foreseeable that it will be difficult for China's digital currency to avoid being targeted by countries such as the US in the future.

In the long run, China's central bank's digital currency may cause a new round of great power competition in the digital currency area. What lies behind the currency competition is the competition in payment technologies and technology regulation. The US has leading global internet companies like Facebook, so it has strong resources in market competition.

In addition, one country's influence in the global regulating system for digital currency is also crucial. Whether a country can participate in the early rule-making process of digital currency regulation has significant meaning for the internationalization of that country's digital currency.

Faced with pressure from countries like the US, China should cope with it in three ways. First, academics should avoid making impractical interpretations about China's CBDC. The digital yuan, which has the purpose of serving the digitalization upgrade of the financial system, has been  misinterpreted as a challenge to the US dollar. This has put pressure on the digital currency.

Second, China should accelerate trials of the digital currency to improve the payment technology's reliability and application. The digital yuan's application should be well integrated with existing payment platforms including Alipay and WeChat Pay.

Third, China should proactively participate in global digital currency discussion over regulating systems, including at the non-official level and academic level, so as to improve the digital yuan's transparency.

The author is an associate research fellow at the Institute for Finance and Economics at the Central University of Finance and Economics and deputy director of the Greater Bay Area International FinTech Lab. bizopinion@globaltimes.com.cn


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