MNI INTERVIEW1: China Payment Platforms To Drive Global E-CNY

The international expansion of Chinese payment platforms should help spread the use of the country's new digital currency abroad, a prominent policy advisor told MNI, ahead of the possible trials to allow shoppers to use e-yuan in several overseas destinations.

Platforms, such as Alipay and WeChat Pay, are already widely accepted in countries, though payments tend to be small, said Huang Yiping, a former member of the Monetary Policy Committee at the People's Bank of China.

Real momentum towards enhancing the yuan's reserve status will only come once the digital currency is made available for wholesale transactions, something which will take time due to the need to meet security and regulatory requirements, he said in an interview.

The PBOC has joined Hong Kong, Thailand and the United Arab Emirates to explore cross-border payment for digital currencies.

But Huang, now deputy dean of National School of Development at Peking University, cautioned that much preparatory work has to be done to prepare the e-yuan for corporate cross-border transactions.

Hong Kong has already completed testing cross-border e-CNY payments with the mainland, and officials say the system will be expanded to other countries "when the time is right."

TIED TO CONFIDENCE

In China itself, the PBOC has expanded domestic trials of e-CNY, also called the Digital Currency Electronics Payment (DCEP), and the six top state-owned banks have distributed about CNY200 million in digital currency in pilot projects across the country, including in 10 cities such as Shenzhen, Suzhou and Beijing.

Huang believes retail use of the digital yuan is a better way to boost the currency's acceptance than the government-led efforts before 2015 which focused on clearing and settlement of cross-border trade and investment while the dollar remained the invoicing unit.

Beijing's focus is now to expand the yuan's current role in reserves and investment following the opening-up of domestic financial markets, Huang said. As yuan-denominated assets, such as bonds, are increasingly included in major international indexes, institutions, particularly central banks, will find the currency more attractive to hold and invest in.

Still, a currency's internationalisation is tied to confidence in factors such as a mature capital market, a robust and stable economy and a sound legal and economic system, said Huang, nothing that the yuan accounted for just about 2% of global reserves as of the second quarter of 2020.

Huang said the dollar's dominance is on a declining trend and global reserve currencies will become diversified, but only over time, with the greenback still unchallenged in safety and liquidity.