The current testing of China’s central bank digital currency (CBDC) or DCEP is still small scale, and it will be a while before it’s expanded. That’s according to Li Lihui, who was interviewed by state media outlet China Daily. Lihui is the former president of state-owned Bank of China and leads the blockchain research group at the China Internet Finance Association.
Lihui expects the digital yuan’s current tests to be expanded later this year or early next year, but said: “whether it can be promoted to the whole country quickly remains to be seen”.
As previously announced by the People’s Bank of China, the initial areas for trials are Shenzhen, Suzhou, Xiongan New Area, Chengdu, and the Winter Olympics locations. Although the Ministry of Commerce recently outlined additional regional tests, these are subject to the go-ahead of the central bank.
In order for trials to be expanded to larger regions, the digital renminbi needs to support high concurrency at a technical level to support the load. Lihui also alluded to some unspecified issues raised during the pilots that need to be addressed first.
At a technical level, he outlined the need to develop standards and receive third party audits and certifications, but once it’s mature.
Plus, there need to be regulatory measures which Lihui said would require quite a bit of time.
Asked about the advantages of the digital yuan compared to Alipay and WeChat Pay, he repeated that the CBDC does not require a bank account and can be used when one or both parties are not connected to the internet.
Digital currency and RMB internationalization
In a recent U.S. Senate hearing, the senator’s question focused on a digital dollar motivation. One of the key ones was maintaining the international status of the U.S. dollar, with concerns about a digital yuan raised directly.
When China Daily asked about the potential for the RMB internationalization, Lihui spoke at length about the importance of RMB internationalization, but not regarding a digital currency. “Currently, in the current account, there are basically no restrictions on the cross-border movement of RMB under trade and services,” said Lihui. He then turned to capital rather than trade flows. “While opening up the capital account, special attention should be paid to the issue of financial security. In this process, there will also be resistance from the outside.”
The government wouldn’t want to make it easier for citizens to send money offshore. And many citizens wouldn’t want the government to know they were moving capital offshore.
Lihui then stated that the CBDC would be far more complex to use internationally because of the need for integration and currency swap systems. And he concluded by stating that the purpose of the DCEP is to replace paper cash, M0. “It will not become a tool used in financial transactions and cross-border investments.” But we note that the last sentence did not mention trade.