The rise of digital currencies is likely to be a gamechanger for the global currency system. As more countries’ central banks begin engaging in research and development competition, China leads the way. Firstly, China’s digital yuan is an example of a central bank digital currency (CBDC) which aims to advance cashless payments. This gives enormous power to the Chinese state and the trade implications are significant. Secondly, China is no stranger to digital money. In fact, hundreds of millions of consumers use the Alipay and WeChat Pay services, scanning QR codes on their smartphone screens instead of fumbling for notes and coins. The digital yuan works much the same way.
China quickly began looking to move its expertise in this currency beyond its borders, exploring a cross-border CBDC.
In February 2021, the People’s Bank of China (PBoC) joined central banks in Hong Kong, Thailand and the UAE. In particular, Hong Kong is a major offshore yuan centre and jumping off point from which China can advance its ambitions to internationalise the yuan.
China is leading the way with the digital Yuan
Wang Xin, director of the research department of PBoC, announced that the Hong Kong Monetary Authority and the PBoC have completed technical tests on the cross-border use of China’s Central Bank Digital Currency.
The trial, which started on Tuesday, is mainly for Hong Kong residents in Shenzhen. Hong Kong residents can register a digital yuan wallet by using their Hong Kong mobile phone number. The daily consume limit can be adjusted to 50,000 yuan ($7,606). After connecting debit card of Bank of China with digital yuan wallet. The digital yuan is basically used for domestic retail payments.
In conclusion, the latest news offers a significant update on the aggressive development of China’s CBDC. China’s central bank has actively moved to take its CBDC expertise beyond its jurisdiction. A number of central banks around the world — including Japan, the U.K., Sweden and Switzerland — are exploring issuing their own digital currencies. The use of the digital yuan in cross border payments can boost the efficiency of international trade business and also enhance financial security.