China’s digital yuan trials completely irrelevant to geopolitics
Published: Mar 09, 2021 05:39 PM
File photo

File photo

China's central bank, the People's Bank of China (PBC), has conducted trials for Digital Currency/Electronic Payment (DC/EP) across selected Chinese cities since last year. Some foreign media outlets recently associated the process with geopolitics, assuming that the PBC plans to establish a new global financial configuration by issuing DC/EP. Some even jumped to the conclusion that the Chinese government deems the issue and control of a sovereign digital currency as a "new battlefield" of national competition.

In fact, the PBC's decision is merely a necessary move to comply with the inevitable trend of global currency development. From material objects and precious metals to paper notes and the digital currency in the future, pursuing simpler and easier payments is an unstoppable trend of monetary and financial development. 

Currency is being endowed with more and more functions as the development of the internet and information technology move forward. Paper currencies in many countries have encountered difficulty in meeting the public's need for currency during economic and social development. 

Transactions and payments in paper currency are untraceable, which leaves many loopholes for regulation. Paper currency still has many shortcomings in the areas of money laundering, terrorist financing, and tax evasion, and can't fulfill the important function of currency supervision.

The emergence of bitcoin and various other digital token tools has had a great impact on legal digital currencies in various countries. In particular, Libra - launched by Facebook - has not only posed a challenge to the US government and the Federal Reserve, but also poses a challenge to other legal tenders across the world.

China was among the nations that suffered an early impact from non-legal digital currencies. In 2017, initial coin offerings uncontrolled by the government caused problems for China's financial market and real economy, triggering financial risks.

Accordingly, the PBC is firm in its determination to develop a digital currency. The introduction of the DC/EP by the PBC is meant not only to protect its currency rights from non-statutory digital currencies, and to provide a strong guarantee for the establishment of a new digital currency financial system, but also to provide experience for countries around the world in issuing legal digital currencies. 

The author is a researcher with China Academy of Regional Finance.