China’s sovereign digital currency is designed primarily to grow retail payments at home and prevent the dominance of the US dollar, rather than address threats raised by cryptocurrencies or stablecoins, a former central bank governor says.

Zhou Xiaochuan, who led the People’s Bank of China from 2002-18, said China was working hard to establish its digital currency and electronic payment (DCEP) system, but its focus differed from the Group of 7 (G7) principals.

“What they are concerned about is mainly to deal with the challenges raised by Libra, bitcoin and similar digital encrypted currencies,” Zhou said during a video conference on Tuesday at the Eurasia Forum, an event hosted by the Hungarian central bank.

In a report released in October, the G7 said stablecoins – digital currencies like Facebook’s Libra that are linked to a pool of assets – need to be appropriately supervised to prevent threats to global financial stability and ensure they were not used to fund illicit activities or tax avoidance.

Zhou said China believed digital currencies must “respect exchange regimes and currency sovereignty”. But he added a major factor in Beijing’s digital currency plan was to avoid “dollarisation”, where the US dollar is used in parallel or instead of the local currency.

China’s central bank is inching closer to the launch of its sovereign digital currency, publishing a draft law on Friday that would give legal status to the DCEP system, and including the digital yuan as part of the country’s sovereign fiat currency.

Zhou is a key backer of China’s digital currency plan and it was under his watch the central bank launched a special institution in 2014 to develop the digital yuan. ……

By Frank Tang in SCMP from Beijing
Published: 6:30am, 29 Oct, 2020

https://www.scmp.com/economy/china-economy/article/3107422/chinas-digital-yuan-aims-halt-us-dollarisation-boost-retail