China Poised to Issue Digital Currency First as Race Turns to “New Battlefield”

As the People’s Bank of China (PBoC) publishes a commentary that points out that China needs to become the first nation to issue a digital currency to internationalize the yuan and reduce its dependence on the global dollar payment system, local media report that the bank’s Digital Currency Research Institute has partnered JD.com to promote the digital RMB wallet ecological construction.

The partnership with JD.com is to promote online and offline payments and the development of a “digital wallet”, according to Yicai. It follows a recent report that selected employees at some of China’s largest banks were trialling the much-anticipated digital currency “on a large scale”. Also, earlier this month, China Construction Bank opened its digital yuan e-wallet to the public though it later disappeared the same day with no explanation.

The global focus on central bank digital currency (CBDC) has taken a new turn in the wake of the COVID-19 pandemic and its adverse impacts on economies hence the race to issue this government-regulated cash in a digital form has intensified even as more countries joined in the experimental phase.

Citing an article published in China Finance, a magazine run by the PBoC which says the rights to issue and control a digital currency would become a “new battlefield” of competition between sovereign countries, Reuters reports that “China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate the pace to seize the first track.” Some of which include its head start as well as the growing number of Internet users in China. The number reached 935 million people with a national Internet penetration rate reaching 64.5% as at the end of 2019 of which mobile Internet users reached 897 million people (or 99.3% of internet users through mobile Internet access).

In a related development and further to a previous letter clarifying its authorization to national banks to start providing cryptocurrency custody services to their customers, the US Office of the Comptroller of the Currency (OCC) has again written another to allow U.S. banks to hold deposits that serve as reserves for certain “stablecoins.”

Based on given reasons, including stablecoin issuers’ promotion of their reserves being held by banks to support the trustworthiness of their cryptocurrencies, the bureau within the U.S. Department of Treasury concludes in the OCC Chief Counsel’s Interpretation on National Bank and Federal Savings Association Authority to Hold Stablecoin Reserves that ‘a national bank may now hold stablecoin reserves as a service to bank customers’ though not presently addressing the authority to support stablecoin transactions involving un-hosted wallets.