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China moves to legalize Digital Yuan and ban competitors with New Draft Law

- People’s Bank of China stipulates for the first time that the digital yuan will be allowed to circulate and be converted like physical currency

- Head of the central bank’s digital currency research institute admits potential problems with Digital Yuan but says they reinforce the need for central bank oversight.

China is inching closer to the launch of its own sovereign digital currency by giving it a legal foundation in an upcoming law revision, while the central bank is also addressing problems that emerged in pilot tests for the digital yuan.

The People’s Bank of China (PBOC) published a draft law on Friday that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency.

The draft law would also forbid any party from making or issuing yuan-backed digital tokens to replace the renminbi in the market.

China appears to be the front runner in the race to issue the world’s first digital currency, having conducted a series of trials in four cities – Suzhou, Shenzhen, Chengdu and Xiongan – as well as at venues for the 2022 Winter Olympics in Beijing.

Earlier this month, a district in Shenzhen, just across the mainland border from Hong Kong, gave away 50,000 digital “red packets”, totalling 10 million yuan (US$1.5 million), to local residents in the largest-scale test so far.

Amid market speculation that the government-led project could threaten the current dominance of privately run mobile payment tools, the official said they should join hands in enriching the applications.

“WeChat Pay and Alipay are just [electronic] wallets, while the DCEP is the money inside them,” he said. “They are not competitors. - Said Mu Changchun, head of PBOC research unit.

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