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China proposes global rules for the management of sovereign digital currencies

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The Central Bank of China has proposed the application of global standards for the upcoming influx of sovereign digital currencies in 2021Bank for International Settlements (BIS) Innovation Summitheld at the end of March.

The outlined plan, titled “ Sovereign Global Digital Currency Governance, ” encompasses cross-border digital transactions, risk oversight, use and ownership of data, and other related financial and risk issues.

Mu Changchun, director of the People’s Bank of China Digital Currency Research Institute (PBOC), said the bank intends to become the world’s first major central bank to issue a sovereign digital currency. It aims to propel the internationalization of the RMB and reduce dependence on the global dollar system.

The development of sovereign digital currencies will improve national financial systems, act as a counterweight to the use of cryptocurrencies such as Bitcoin, and improve the efficiency of global financial transactions.

The proposed rules would regulate the use, supervision and sharing of information globally. According to the PBOC, an upcoming challenge is to provide a reasonable supply of digital currency and to use it as part of the sustainable and stable development of the international monetary system.

The PBOC’s proposals:

  • The flow of financial and digital currency data must be simultaneous to help regulators monitor transaction compliance.
  • The digital currency is expected to be mined through a scalable and supervised sovereign digital currency exchange platform, supported by DLT (a blockchain-like distributed ledger technology) or comparable technologies.
  • Interoperability between the sovereign digital currency systems of central banks is crucial.
  • The independence of central bank monetary decisions is also crucial. A decision by central banks on monetary supplies within its borders should not interfere with the monetary decisions of another central bank.
  • At the same time, global central banks that embrace digital currencies should take collective responsibility for maintaining global financial stability.

China’s Opinion on the Development of Central Bank Sovereign Digital Currency

If international standards for sovereign digital currencies are accepted globally, this system could gradually replace the global monetary order backed by the US dollar. Therefore, countries that adhere to the digital currency infrastructure will be able to reduce their dependence on the dollar. Indeed, several countries have lost faith in the United States’ use of the US dollar as a trade weapon and have used it to punish countries that do not follow US international policy.

China,Russia,Iran,Japan, and the UK, among others, has started actively working on launching their central bank digital currencies. China hasalready carried out pilot testsin the Beijing-Tianjin-Hebei metropolitan area, in the Yangtze River Delta region and in the Great Bay region. The choice of these zones is motivated by their capacity for financial innovation and the impact of high consumption on local economies.

In addition, the Digital Currency Research Institute of the People’s Bank of China also explored the internationalization of digital RMB. A research project on the Multilateral Central Bank Digital Currency Bridge (m-CBDC Bridge) is under development with the Hong Kong Monetary Authority, the Bank of Thailand and the Central Bank of the United Arab Emirates.

It is significant that China has taken the lead in recognizing the developing digital trend and its growing impact on global banking and finance and is currently ahead of development in this area, taking the lead from the United States – which don’t want to change the current US dollar-based global trading system.

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