Digital yuan will combat US 'dollarization' says former PBoC governor

China’s digital currency approach will favor its domestic retail system and prevent the dollarization of the economy according to one former senior official.

Zhou Xiaochuan, the president of the Chinese Finance Association and former governor of the People’s Bank of China (PBoC), told attendees at a Eurasia Forum conference on Oct. 27 that the central bank’s focus in creating a digital currency differed considerably from that of the countries in the Group of Seven — Canada, France, Germany, Italy, Japan, the U.K., and the U.S.

According to Xiaochuan, the G7 was mainly concerned with “the challenges raised by Libra, Bitcoin, and similar digital encrypted currencies,” while China’s central bank was focusing on using its digital currency for retail payments domestically and preventing the U.S. dollar from becoming a more common medium of exchange in the country.

“In China, we’ve [been working] very hard to push the DCEP — that's the digital currency — and the electronic payment,” said Xiaochuan. ”However, the focus and the major point of our concept and the content are different from the G7 principle.”

“We [need] to prevent dollarization. This is one of the major designing points of the Chinese DCEP.”

Countries representing the world’s largest economies have openly expressed their concerns regarding the launch of Facebook’s Libra project, calling it a threat to the global financial system. In a draft of a statement released on Oct. 12, the G7 members said they would initially oppose any global stablecoin project without appropriate regulatory oversight.

Officials at Canada’s central bank have reportedly been preparing their own CBDC if Libra were to get blocked by regulators. Today, Bank of Canada Governor Tiff Macklem stated that central banks needed a “globally coordinated” strategy in developing a digital currency to prevent misuses by criminals.

China’s central bank recently launched a pilot program to test its digital yuan by giving away $1.5 million to 47,500 people in the city of Shenzhen. Though the CBDC has not been officially released by The People’s Bank of China, it recently drafted a law providing regulatory framework and legitimacy to the digital currency. The law is open for public consultation until Nov. 23.