Banking News

China suggests principles for cross border CBDC to ‘avoid dollarization’

changchun mu digital currency research

Mu Changchun, Director of the Digital Currency Research Institute of China’s central bank, has outlined some ground rules China is keen to establish around cross border payments involving central bank digital currencies (CBDC). He was talking today at a Bank for International Settlements (BIS) event.

While Ledger Insights was one of the first in 2019 to highlight the digital yuan as an opportunity to expand the renminbi’s international reach, the Director’s comments show that other CBDCs might prove attractive to Chinese and Hong Kong citizens as well. 

Mu Changchun said, “There is an old Chinese saying that ‘Do not do unto others, that you don’t want others to do unto you.'” (Confucius, and there’s a similar Bible quote.)

The Director continued, “Our project is to safeguard the monetary sovereignty. And most of the monetary authorities or central banks would like to do the same to avoid dollarization. So I today would like to propose some key values in cross border payments with reference to digital fiat currency or CBDC.”

“Firstly, the CBDC or digital fiat currency supplied by a central bank should continue supporting the healthy evolution and financial stability of the international monetary system.” 

“And CBDC or digital fiat currency supplied by one central bank should not impede other central banks’ ability to carry out his mandate for monetary and financial stability.”

“Cross border payment arrangements with CBDC should comply with the regulations and the laws of the jurisdictions concerned such as capital management and foreign exchange mechanisms and information from fund flows should be synchronized. First to facilitate the regulators to monitor the transactions for compliance.”

“That’s the second vale, compliance. Of course, the arrangements with CBDC should improve the transparency with cross border e-commerce and help to address the regulatory pain points in AML and CFT, customs and tax declarations, capital management, etc.”

“Of course, interoperability should be enabled between CBDC systems of different jurisdictions. And an exchange of CBDC could be processed across borders between different digital wallets. We also propose a scalable foreign exchange trade platform supported by DLT or other technologies could be established.”

“Those are the values we share with other central bankers or monetary authorities. So we will comply with the same values or principles in the future with our CBDC in the cross border use cases.”

China is already involved in cross-border experiments with Hong Kong, Thailand and the UAE through a BIS Innovation Lab. And the BIS recently published a paper on the topic.

We will update the article shortly with Mu Changchun’s key points relating to the digital yuan’s motivations and design choices.


Image Copyright: BIS