Decrypt’s Art, Fashion, and Entertainment Hub.
Zhou Xiaochuan, the former governor of China’s central bank, the People’s Bank of China, said in a conference on Sunday that the upcoming digital yuan is not being issued to replace existing fiat currencies, local publication SCMP reported this morning.
Instead, the digital currency will function alongside the currently used digital payment systems offered by nations and private operators.
Much has been written in the past few months about China’s upcoming digital yuan, officially the Digital Currency Electronic Payment (DCEP), and its aspirations to ease into global payment systems and gradually become the backbone of payments in Asia after its launch in 2022.
Tests have been widely successful so far. Over $300 million were transacted as of last month and a test last week—a “tap” payments feature that mimicked cash payments—saw a record $3 million in transactions over the weekend.
But none of that is meant contend with fiat money around the world, notes Zhou. “Some countries are worried about the internationalization of yuan. We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism,” he said.
Zhou claimed the change in focus came after Chinese authorities observed the global backlash to Facebook’s ambitious stablecoin project, initially called Libra. The latter aimed to back itself by a basket of different fiat currencies and use Facebook’s encompassing network to operate globally.
But that plan was met by strict criticism from governments challenging the notion of a private company trying to take over the world’s financial systems. Libra has since rebranded to Diem and is now focusing as a dollar-backed stablecoin with muted aims—a move the digital yuan creators have taken note of.
“We are not like Libra and we don’t have an ambition to replace existing currencies,” Zhou said, adding that while the digital yuan may see a use case for investments or trading, it isn’t meant to replace or challenge the US Dollar and the Euro.
So where does the digital yuan help in the current setting? As per Zhou, it’s a tool that helps with transparency and accountability in China’s existing digital payments space, one led by private players like WeChat and Alibaba.
Another is for real-time, cross-border remittances and foreign exchanges, which local firms are slow at. Over time it will start working with international vendors to accept payments in the digital yuan. But in a gradual, friendly way, of course.