China goes one step further in the digital currency project. The Asian country’s digital currency is one of the first to enter circulation in the world and continues to develop. Now, it is expanding to other places China goes one step further in the digital currency project: Already testing the eyuan for overseas payments.
China’s government is rapidly expanding the testing of its central bank digital currency (CBDC). It recently announced that it has completed its first cross-border pilot of the digital yuan with Hong Kong.
In this regard, Wang Xin, director of the People’s Bank of China’s research bureau, confirmed that the Hong Kong Monetary Authority and the PBoC conducted technical tests on the cross-border use of his country’s central bank digital currency.
The official reported the news at a press conference held Thursday by China’s State Council Information Office, local news agency Sina Finance reported.
The initiative was confirmed shortly after Mu Changchun, director of the PBoC’s research institute, put forward a set of global rules for CBDCs last week.
Speaking at a seminar organized by the Bank for International Settlements, Mu called on the world’s financial institutions to cooperate with the global interoperability of national digital currencies and make efforts to realize them in practice.
“Interoperability should be enabled between CBDC systems of different jurisdictions and exchanges. The PBoC had shared the proposals with other central banks and monetary authorities,” the executive explained.
CBDCs are constantly being updated and developed by the Chinese government. After testing internal digital yuan pilots in April last year, the Chinese central bank intended to actively move its CBDC experience beyond its jurisdiction as a next step.
Previously, the PBoC met with authorities from several countries besides Hong Kong, such as Thailand and the United Arab Emirates, to test a cross-border CBDC in February 2021. In late 2020, an HKMA official stated that the regulator and the PBoC were in the preliminary stages of testing the digital yuan for cross-border payments.
China’s renowned digital currency, launched in 2020, had already been used in more than 4 million transactions by November last year, totaling more than 2 billion yuan ($309,520) in value. The cryptocurrency pilot has been ongoing since April 2020, with early trials focusing on major cities such as Shenzhen, Chengdu, Suzhou, and Xiongan.
The introduction of the digital yuan attracted government officials and various analysts to study its possible geopolitical implications and its potential impact on a global financial system that continues to revolve around the U.S. dollar as the global reserve currency.
What are CBDCs?
CBDCs are or are intended to be, a digital equivalent to physical money. Just as, for example, four quarters are the equivalent of a dollar bill, a dollar in digital currency will be the equivalent of a dollar in physical cash. It is simply a new technological expression of the same fiat money.
Recall that fiat money, is, as described by the Mises Institute of Alabama, “money comprising things with a special legal qualification,” i.e., these things are not technologically dissimilar from other things, except for the marks showing that they have a special legal qualification. The corollary of this is that technologically dissimilar things-metal currency, paper banknotes, and digital assets are part of the fiat money supply as long as they possess the marks confirming their legal status.
It should be clear that, from the point of view of the central bank, the issuer of fiat money, the digital currency has some advantages over physical cash. On the one hand, its production is free: Although the production costs of physical money are negligible, they are there and can be particularly evident when new physical money has to be distributed quickly (for example, to avoid a run on a bank).
On the other hand, digital currency can not only be created instantaneously but can also be distributed instantaneously to the people central banks want. This is because there are two models for holding and using CBDC: Either directly with the central bank in a “digital wallet” or an account with an intermediary designated by the central bank.
In either case, the country’s top financial institution can quickly and freely direct the flow of new digital currency to whomever it wants, says Mises Institute.