China proposes set of rules for global digital currencies
China proposed a set of global rules for central bank digital currencies on Thursday, from how they can be used around the world to issues such as monitoring and information sharing.
Global central banks are looking at developing digital currencies to modernize their financial systems, ward off the threat from cryptocurrencies like bitcoin and speed up domestic and international payments. China is one of the most advanced in its effort.
Mu Changchun, director-general of the PBOC’s digital currency institute, laid out the new proposals at a Bank for International Settlements seminar.
“Interoperability should be enabled between CBDC (central bank digital currency) systems of different jurisdictions and exchange,” he said. The PBOC had shared the proposals with other central banks and monetary authorities, he said.
“Information flow and fund flows should be synchronized so as to facilitate regulators to monitor the transactions for compliance.”
As digital currencies such as bitcoin gain more traction with mainstream companies and investors, and as private efforts like the Facebook-backed Diem seek approval, the onus is on central banks to accelerate plans to issue digital cash to fend off threats to their control over money.
The PBOC is aiming to become the first major central bank to issue a CBDC, part of its push to internationalize the yuan and reduce dependence on the dollar-dominated payment system.
The European Central Bank is also exploring the introduction of a digital euro within the next five years. It’s running into opposition from Germany, where the Bundesbank worries that a digital euro could pose risks to banks.
A digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability.Mu Changchun, director-general of the PBOC's digital currency institute
Mu added that a key global rule should be a “fair supply of digital currencies” by world central banks to continue supporting the healthy evolution and financial stability of the international monetary system.
A “digital currency supplied by one central bank should not impede another central bank’s ability to carry out its mandate for monetary and financial stability,” he said.
China said separately on Thursday it would quicken pilot programs to develop its digital yuan, as it seeks to boost consumption to shore up economic growth.
Mu pointed out that retail-focused central bank digital cash could provide a key backup for widely used Chinese mobile payment methods such as Alipay and Tencent. “To provide a backup or redundancy for the retail payment system, the central bank has to step up and provide CBDC services to the retail payment market,” said Mu.
The PBOC is looking at developing digital currencies that could play a role in making domestic and international payments faster and cheaper for both large-scale and consumer transactions.
Retail payment giants such as Ant Group’s Alipay and Tencent’s WeChat Pay have become key financial infrastructure for the country, Mu said, adding that any future digital yuan would exist alongside — and not replace — such payment methods.
“Paperback notes and e-wallets will not vanish,” he said. “This process of this issuance of retail CBDC will be market-oriented approach, and they will co-exist and they will cooperate in this retail payment system.”