Coronavirus highlights ‘urgent’ need for China’s digital currency, says state-owned bank
- China’s e-yuan will allow closer scrutiny of risky investments and help ensure repayment of debt, says Guo Weimin, chief scientist at the Bank of China
- In next phase of development, digital currency will be expanded to cross-border transactions using Hong Kong as a conduit, say experts
The economic challenges caused by the coronavirus pandemic have increased the urgency for Chinese companies to adopt the use of a digital currency, Guo Weimin, chief scientist at the Bank of China, said on Tuesday.
Guo said the key advantage of the e-yuan system was its ability to trace cash flow and make it easier to enforce financial regulations, which were absent from traditional payment systems and created huge challenges for the real economy.
For example, the pandemic has created issues surrounding the collection of debt and collateral by businesses that are struggling to survive. The problem showed the need for a digital system that provided closer scrutiny of payments, said Guo during a panel discussion at the Asian Financial Forum in Hong Kong,
Risky investments in the property market that did not fit the original plan of a project could also be monitored with the digital currency, he said.
“[Regulatory capacity and traceability] should be the key focus given the current economic situation, as this has become rather urgent,” Guo said. “There will be a lot of challenges from the pandemic that will make good cases for the use of digital currencies.”
In addition to the big four banks – Bank of China, China Construction Bank, Industrial and Commercial Bank of China and Agricultural Bank of China – two more state-owned banks, Bank of Communications and Postal Savings Bank of China, are working with authorities on the development of the e-yuan.
Zhou Ziheng, chairman of Zhejiang Modern Digital Finance Research Institute, said future development of the digital currency would shift away from its focus on consumer use to business and government applications.
“The corporate side is much more important because it would involve the digitalisation of corporate assets and financial digitalisation,” Zhou said at the forum. “This makes digital currencies apparently different from just digital payments.”
China already has established digital payment platforms like Alipay and WeChat Pay.
In the second phase of experimentation, use of the digital currency will be expanded beyond the domestic market to cross-border payments using Hong Kong as a conduit, said Zou Chuanwei, chief economist at consultancy Wanxiang Blockchain.
China’s Ministry of Commerce announced in August last year that the digital currency would soon be tested in several new regions, including the Greater Bay Area, an integrated economic hub that takes in Hong Kong, Macau and nine Pearl River Delta cities.
Hong Kong is working with Thailand’s central bank to promote the digital currency in cross-border trade.
Given its role as an international financial centre and the world’s largest offshore renminbi hub, Hong Kong is well positioned to facilitate the international expansion of the e-yuan, said Laurence Li Lu-jen, chairman of the Hong Kong Financial Services Development Council.