MNI EXCLUSIVE: Digital Yuan May Be China-Wide In 2 Years

China's experimental digital currency could soon be in widespread retail use throughout the country, policy advisors told MNI, adding that the project's initial focus on replacing cash transactions means its impact on monetary policy will take longer to emerge.

The People's Bank of China is conducting pilots of the Digital Currency Electronic Payment system in four economically significant regions, Shenzhen, Chengdu, Suzhou and the Xiongan New Area. Once these tests have been successfully completed the digital currency should be extended throughout the country by 2022 or 2023, according to Yang Wang, senior researcher at Renmin University's International Monetary Institute.

The pilots are focussing on small payments which occur at low frequency, such as taxi fares or meals. As the DC/EP will only replace cash, it will initially only have a limited impact as a monetary policy tool, said Huang Yiping, a former member of the PBOC's Monetary Policy Committee.

But in the longer term the digital yuan could affect the speed of currency circulation and the PBOC's ability to manage interest rates, said Huang, now deputy dean of the National School of Development at Peking University.

FASTER THAN BITCOIN

The PBOC will clear and settle the DC/EP via a platform based on the central bank's existing payment and clearing systems. Incorporating some blockchain technology, the system works even without an Internet connection. It will be capable of processing transactions much faster than the maximum speed of only seven per second that can currently be handled by Bitcoin and is likely to be faster than major third-party electronic payment providers, said Yang.

No interest will be paid on digital yuan, so as not to drain China's financial system of deposits, and transactions will take place via commercial banks existing apps.

The PBOC will trial DC/EP on international users at the 2022 Winter Olympics, though Zou Chuanwei, chief economist with Wanxiawng Blockchain said it is still not yet clear how the central bank will enable non-Chinese residents to use the digital currency.

Several challenges remain before the digital yuan can drives internationalisation of the Chinese currency itself. "If the yuan is not yet convertible under the capital account and the exchange rate is not determined by the market, the digital yuan won't directly have the function of internationalisation," said Huang.