China digital currency: Hong Kong, Shenzhen proposed as ‘expressway’ for cross-border financial innovation
- Central bank official proposes ‘regulatory sandbox’ for testing of cross-border financial transactions using the digital yuan
- Convenience of the digital currency will help promote yuan convertibility and greater use internationally, senior official says
A senior central bank official has proposed establishing a controlled environment known as a “regulatory sandbox” to test China’s digital yuan and push greater capital account convertibility between Shenzhen and Hong Kong.
The proposal from Xing Yujing, president of the People’s Bank of China’s Shenzhen branch, comes as Beijing accelerates promotion of its sovereign digital currency, the so-called Digital Currency Electronic Payment (DCEP), and takes careful steps to allow freer capital flows into and out of the country.
“We can explore allowing market entities with strong cross-border financial demand and risk control capability to use digital renminbi in a convertibility pilot,” she said last week in an interview with Outlook Weekly, a publication under the official Xinhua News Agency.
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But the establishment of a regulatory sandbox, in which financial institutions and fintech companies can experiment with innovative products in a supervised environment, could create an “expressway of cross-border financial innovation” between the two cities, Xing said.
The convenience of the digital currency will help promote yuan convertibility and greater use internationally, Xing added. Its ability to support “smart contracts”, which are recorded on a digital ledger, and real-time monitoring will also help prevent risks.
Shenzhen, a technology hub just over the border from Hong Kong, has long been viewed as a strong candidate to pilot freer cross-border flows.