China is in the process of introducing a digital version of its yuan currency. Photo: iStock

China needs to become the first country to issue a digital currency so it can reduce its dependence on the global dollar payment system, the People’s Bank of China (PBOC) said in a commentary in its magazine.

The article in China Finance said the rights to issue and control a digital currency would become a “new battlefield” of competition between sovereign countries, Reuters reports.

The issuance and circulation of the digital yuan would lead to massive changes to existing international finance, it said.

“China has many advantages and opportunities in issuing fiat digital currencies, so it should accelerate the pace to seize the first track,” the article said.

Local media last month reported some of China’s major state-run commercial banks have already started conducting large-scale internal testing of a digital wallet, moving a step closer to the official launch of the home-grown digital currency.

The China Finance article argued that the improved data feedback from a digital currency would help enhance monetary policy transmission, which support an economic recovery in the post-pandemic era.

China also needs to establish a new payment system network to break the dollar monopoly as a key part of the yuan internationalisation, the article said.

It added that a PBOC digital currency research unit has filed 130 patent applications related to cryptocurrency ranging from issuance, circulation to application as of end-April. Those functions would form a complete supply chain to support the launch of a digital currency.

In April, the PBOC’s digital currency institute told Reuters it was conducting internal trials of a digital currency electronic payment system in four cities and that it intended to pilot the system at future Winter Olympics venues.

The PBOC set up the research team six years ago to explore the possibility of launching a digital currency to cut the cost of circulating paper money and boost policymakers’ control of money supply.

Do CBDCs need blockchain?

Meanwhile, retail central bank digital currencies do not require the use of blockchain technology, according to executives at major European central banks, Cointelegraph reports.

Thomas Moser, an alternate member of the governing board at Swiss National Bank, and Deutsche Bundesbank’s Martin Diehl discussed the state of CBDCs at the European Blockchain Convention Virtual 2020 conference on Monday.

During the online panel discussion, both Diehl and Moser seemed to agree that global retail CBDC projects do not need blockchain, citing a number of reasons.

Moser said that the primary use cases for blockchain intend to provide trust when a project has no central party. “Like for instance, bitcoin. I think it is a very good use case for blockchain,” the exec noted.

However, the expert went on to say that central bank involvement makes use with a retail CBDC unnecessary because the trust is provided by a central party.

Moser said: “But if you have a central bank, then this is the central party. And if you trust that central party, I think then it’s not really straightforward to reason that you need a blockchain.”