China’s sovereign digital currency plans must be globally compatible to internationalise the yuan, analysts say
- The ‘interoperability’ of the digital yuan with international payment systems and other central bank digital currencies will determine its use abroad
- There is a sense of urgency to promote greater use of the yuan to help China offset threat of worst-case US sanctions that could cut it off from dollar payment system
China is set to expand the testing of its new sovereign digital currency later this year or in early 2021, but analysts say the design of its technological platform needs to be made compatible with those of other countries if the digital yuan is to play a role in international transactions.
“Under the threat of US sanctions, the near-term goal is to minimise disruptions to China’s trade and investment activities, [by promoting the use of the yuan beyond its borders],” said Jing Sima, a China strategist at BCA Research.
However, the People’s Bank of China (PBOC), which is overseeing the digital yuan’s development as the nation’s central bank, has played down expectations that the digital currency will see a full roll-out any time soon, saying only that testing will continue.
China’s expansion of the pilot programme for its digital currency is focusing on its use in the retail sector, the state-run China Daily reported last week, citing Li Lihui, head of the blockchain research group of the National Internet Finance Association of China.