- Once the new currency is issued, it will be classified as M0 (cash issued by the central bank).
- Everything indicates that the government refines details, but there is no official launch date yet.
The digital yuan will meet all the requirements to be accepted as legal money and will have all the functions of China’s fiat currency. It will also be regulated like cash. This was pointed out by the vice president of the Central Bank of China (PBoC), Fan Yifei, in a recent publication.
According to the vice president’s opinion article, published on September 14 in the local media “China Financial News,” China’s new central bank digital currency (CBDC) will circulate as M0 (money issued by central banks). This fact means that it will be part of the supply of paper notes and coins of the Asian country, and as such it will be totally controlled by the central bank.
Centralized management of the issuance and circulation of M0 is a common practice of global central banks. To ensure the ability to control currency issuance and monetary policy, central banks and monetary authorities of the world’s major economies have implemented centralized management of the issuance and circulation of cash.
Fan Yifei, vice president of the Central Bank of China.
Yifei explains that in order for the PBoC to centralize the issuance and management of the digital yuan, the way in which the currency will be handled is currently being coordinated. In addition, they will formulate unified business standards, along with technical specifications, safety standards and application standards. The official added that China’s central bank is also evaluating the registration, monitoring and analysis of the CBDC exchange.
According to the official, this process includes the management of digital portfolios and the adaptation of the infrastructure to achieve interoperability between the operating institutions. This, in order to guarantee the stable and orderly circulation of the digital currency.
Previous publications related to the CBDC, have already exposed the intention of the PBoC to maintain absolute control over the issuance and infrastructure of the new digital currency. Only distribution of the CBDC to the public will be through commercial banking.
Digital Yuan: the evolution of China’s legal tender
The senior official mentions the principles that will govern the operation of the digital yuan. He reiterates that China’s central bank views the issuance of the CBDC as a digital representation of cash.
“The historical evolution of legal tender currencies is driven by technology and demand, so the currency gradually goes from physical to digital form,” says Yifei. Consequently, the digital yuan will be regulated according to the laws related to cash, and it will have to comply with all the regulations related to the management of this type of money.
Yifei emphasizes the fact that the digital yuan is designed to become legal tender. It indicates that depending on all the provisions governing the renminbi (yuan), its digital version may also be used to pay “all public and private debts within our territory.” He emphasized that the digital currency must be accepted throughout the country, and “no unit or individual can refuse to accept it if the conditions are met.”
Furthermore, as it is regulated under all the money regulations in force in China, the digital yuan must also comply with the policies against money laundering and terrorist financing (AML/CFT). To do this, it includes “a controllable anonymity system”, which will allow transactions to be traced and monitored, and to prevent money laundering.
So far, everything indicates that the Chinese government is fine-tuning the details for the design and final issuance of the digital yuan, although it has not indicated a launch date. For several months the PBoC and a group of commercial banks have been conducting tests in various cities in China. The experimentation process has been restricted to small operations, according to several reports.