China's Digital Yuan Will Target Retail Payments First, Ex-Central Banker Says

Former PBoC head Xiaochuan Zhou says the digital yuan will enable retail payments first, but might need a different technical design for cross-border payments.

AccessTimeIconNov 26, 2019 at 6:15 p.m. UTC
Updated Sep 13, 2021 at 11:44 a.m. UTC
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One of China’s first goals with its central bank digital currency is to facilitate retail payments, a former senior official said Monday.

Speaking at the Caixin Hengqin Forum in Zhuhai, former head of the People’s Bank of China Xiaochuan Zhou said the country will stress the retail use of digital payment for the digital yuan, according to a media report from Caixin. 

“There are two goals for international digital currencies,” Zhou said. “The first one, which is also what China envisions is to develop digital payment and its use for retail system in the country, while the other goal is to cross-border payment for international financial institutions.” 

According to Zhou, these two goals will require different technical designs for the digital yuan, and China might expand its capabilities once it implements the digital payment function in retail. 

Zhou said China is a difficult environment to test out the new digital currency, and a country with a smaller population could be better since the cycle for currency circulation is shorter. 

“In case there is something wrong, it will be easier to steer the boat into a different direction,” he said. 

Though Zhou is no longer working as the head of the Chinese central bank, his speech could be a meaningful message from the authorities in terms of how the bank will launch the digital currency DCEP (Digital Currency, Electronic Payment). 

The Chinese government has traditionally sent soft signals from former senior officials before making formal announcements, said Mable Jiang, a partner at Nirvana Capital, a Beijing-based venture capital firm specialized in financial technologies. 

“I think this is an important signal that China would start pushing retail use of DECP hard in some economies that fit Zhou's description about smaller population and good internet infrastructure,” Jiang said. 

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