MNI POLICY: China Lead in Digital Currency to Elevate Yuan

China's pioneering innovation in issuing digital currency will allow the country to bypass existing international transaction rules when promoting the digital currency and help boost the internationalisation of the yuan, Qiao Xinsheng, a scholar at the Zhongnan University of Economics and Law, wrote in a commentary published by the Securities Times on Thursday.

The People's Bank of China will issue digital currencies to state-owned commercial banks and banks will in turn issue them to the public, giving the digital currency both sovereign and commercial credit, Qiao wrote. Once a problem occurs, commercial banks will first assume the responsibility of guarantee and then report to the central bank, he said.

The move by China will likely pose challenges to U.S. dollar's domination of the international monetary order, so the Federal Reserve would have to consider issuing digital currency to defend the dollar's dominance, Qiao said. It will be difficult for the Fed to balance different interest blocks, modify its legal system and bypass the existing credit system to establish a secure digital currency system, Qiao wrote.

As many American banks are credit-backed banks, the issuance of digital currency will threaten their existing business model of issuing bank cards and collecting loan interest, Qiao wrote.

While the U.S. is entangled by domestic difficulties, China will step up its efforts in the issuance of digital currency and lead most countries in the world, he said.