China has no plan to replace USD with digital yuan, former PBoC head says

The Chinese government is not seeking to replace existing fiat currencies with its own digital currency, according to a former governor of the People’s Bank of China, or PBoC.

Zhou Xiaochuan, the president of the Chinese Finance Association and former PBoC governor, claimed that China’s digital yuan is not intended to replace global fiat currencies like the United States dollar and the euro, the South China Morning Post reported on Dec. 14.

Also known as a digital currency electronic payment, or DCEP, China’s digital yuan is purely designed to transform cross-border trade and investment, Zhou said. Zhou contrasted China’s digital currency to Facebook-backed cryptocurrency project, formerly known as Libra:

“If you are willing to use it, the yuan can be used for trade and investment [...] But we are not like Libra and we don’t have an ambition to replace existing currencies.”

Zhou went on to say that China learned a lesson from global regulatory pushback to the Libra project, with regulators fearing that it would disrupt financial systems and monetary sovereignty. Zhou said that China took a more cautious approach:

“Some countries are worried about the internationalization of yuan [...] We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great-power chauvinism.”

Zhou noted that one of the major benefits of DCEP is that it enables both payments and currency conversions in real time. “If the currency exchange is realized at the moment of a retail transaction, and there is oversight of that exchange [...] it brings new possibilities for interconnection,” he said.

Zhou also emphasized that most retail cross-border payments involving Chinese consumers are already cashless and settled via credit cards or payment services like Alipay and WeChat Pay, but a digital yuan has additional benefits like real-time processing and transparency.

As China actively progresses with its digital currency pilots, some financial experts in other countries have voiced concerns that they are lagging behind in developing their own central bank digital currencies. In October 2020, Japan's vice-finance minister for international affairs warned the global community of the potential risks of China’s digital yuan, mentioning the potential threat of China getting a first-mover advantage.