China to possibly launch digital yuan trials of cross-border regulatory sandbox promoting capital convertibility
Published: Jun 08, 2021 08:11 AM
Residents who received red packets of digital yuan use the money in stores in Shenzhen, Guangdong Province. Photo: Li Hao/GT

Residents who received "red packets" of digital yuan use the money in stores in Shenzhen, Guangdong Province. Photo: Li Hao/GT

China is considering launching trials of a cross-border regulatory sandbox by adopting digital yuan as the carrier to test capital account convertibility in the Guangdong-Hong Kong-Macao Greater Bay Area, a senior central bank official proposed in a recent interview. 

The use of digital yuan in the past was mainly targeted as a substitute of cash, seen as a great leap as digital yuan can serve for investment purposes now, Dong Dengxin, director of the Finance and Securities Institute of Wuhan University, told the Global Times on Monday. 

Exploring and promoting the construction of cross-border regulatory sandbox in the Guangdong-Hong Kong-Macao Greater Bay Area can better serve regional financial reform and opening up, science and technology finance, green finance and other major financial development strategies, Xing Yujing, the director of the People’s Bank of China’s Shenzhen branch, said in an interview with Chinese media outlet Outlook Weekly in May.  

Since the three cities have different social systems and legal systems under the framework of the "one country, two systems" principle, there are certain difficulties in managing and supervising the cross-border regulatory sandbox, according to Xing, adding that the three cities belong to different tariff areas and the three currencies adopt different exchange rate systems and capital flow management systems, many aspects do not have precedent to follow both internationally and domestically. It is significant to have well-functioning mechanisms for regulatory communication and cooperation among the three cities.  

Digital yuan does not break the current supervision framework, which still complies with existing rules of foreign exchange control and the cross-border transaction of capital account, Dong said, noting that digital yuan will achieve a more convenient and safer payment method and cross-border transfer of funds, citing an example of digital yuan will play a significant role in cross-border financial management pilot programs implemented in the Guangdong-Hong Kong-Macao Greater Bay Area as a digital currency payment. 

There are two paths for carrying out trials of cross-border regulatory sandboxes which are to launch a single pass cross-border regulatory sandbox pilot program and to launch trials of cross-border capital account convertibility sandbox using the digital yuan as the carrier, Xing said.