The digital yuan will be legally compensatory to China’s fiat money: Deputy Governor of PBoC
Commercial banks and non-bank payment institutions to play an active role in the digital yuan system
A senior executive of the People’s Bank of China (PBoC), the country’s central bank, has stated that China’s CBDC must be regulated in-line with cash-related laws worldwide. China’s Central Bank Digital Currency – the digital yuan is expected to be the first digital version of a currency issued by a major country’s central bank.
As trials are on in numerous cities in China, Fan Yifei, a deputy governor of the People’s Bank of China explained the policy implications of the digital yuan in an opinion article published today.
Outlining the major regulatory principles for the operation of the digital yuan, Fan explained that the digital yuan is legally compensatory to the traditional fiat currency. He stressed the idea that the CBDC is “mainly positioned” as M0, which refers to the most liquid form of money: notes and coins issued by the central bank. This means that the digital currency will be part of the supply of paper notes and coins.
Based on this, Fan said that the digital yuan must “comply with laws and regulations related to cash management.”
At the same time, the digital renminbi has digital characteristics and is not fully applicable to all the regulatory rules for the circulation of physical cash, Fan reasoned.
“It is necessary to formulate specific regulatory requirements for the digital renminbi and build a digital renminbi circulation environment. At the same time, as the digital renminbi issuance and circulation system gradually matures, timely improvement should be made to the laws and regulations,” he added.
However, it is important for the digital currency to comply with all laws and regulations on cash management, Anti-Money Laundering, and combating terrorist financing, he said. According to the indemnity provisions of the Chinese currency, Fan stated that the digital yuan could be used to pay “all public and private debts within the territory of our country.”
In its position as a legal tender, the digital currency must be accepted everywhere in the country, and “no unit or individual may refuse to accept it if the conditions are met,” he added.
The deputy governor explained that it is important for commercial banks and non-bank payment institutions to play an active role in the digital yuan system in order to improve accessibility and ensure smooth integration into the existing financial market.
The commercial banks and related institutions, under the supervision of PBoC, will play an important role in “the management of retail links to achieve the safe and efficient operation of the digital renminbi, including payment product design innovation and scenario expansion, Market promotion, system development, business processing and operation, and maintenance services,” Fan concluded.
