China could use digital yuan to promote capital convertibility

Shenzhen

CHINA could use the digital yuan in a cross-border "regulatory sandbox" programme to test capital account convertibility between Shenzhen and Hong Kong, according to a proposal by a senior central bank official.

Authorities could "explore allowing market entities with strong demand for cross-border financial services and controllable risks to use the digital yuan as a carrier in the pilot programme of capital account convertibility" between the two cities, said Xing Yujing, director of the People's Bank of China's (PBOC) Shenzhen branch, in an interview with Xinhua-affiliated Outlook Weekly.

The interview, first published on the magazine's website on May 25, was reposted by the State Administration of Foreign Exchange's Shenzhen branch on May 31.

The programme could help accelerate the promotion of capital account convertibility and internationalisation of the yuan, Ms Xing said. Risks can be effectively prevented and controlled using the smart contract of the digital yuan and the real-time transaction data monitoring function, she added.

The PBOC and Hong Kong Monetary Authority have already conducted successful cross-border testing of the digital yuan and authorities are looking to now expand the programme.

Another PBOC official also recently highlighted the important role that the digital yuan can play in advancing China's push for yuan internationalisation. Zhu Jun, head of the central bank's international department, said in an article last month that China faces an "important window" to promote global use of the yuan as risks of US-China decoupling in trade, technology and investment threaten to spread to the area of finance. She said China "should take advantage of the early progress" in the digital yuan's development to explore potential areas for internationalisation. BLOOMBERG