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

The digital yuan could have a very positive impact on cross-border trade as well as support the Chinese government’s efforts to promote the yuan (renminbi) as a global currency, but it is no threat to the US dollar, the former head of the People’s Bank of China said on Sunday, the South China Morning Post reports.

Speaking at the Shanghai Financial Forum, Zhou Xiaochuan, who stepped down as governor of China’s central bank in 2018, said that one of the most significant benefits of using a digital system is that enables both payments and currency conversions to take place in real time.

“If the currency exchange is realized at the moment of a retail transaction, and there is oversight of that exchange … it brings new possibilities for interconnection,” he said.

Zhou, a strong proponent of China’s sovereign digital currency plan, stressed that the Digital Currency Electronic Payment (DCEP) – as the digital yuan is formally known – was not intended as a replacement for internationally accepted fiat currencies like the US dollar and the euro.

Referring to the blockchain-based payment system and crypto proposed and backed by social media platform Facebook, Zhou said, “If you are willing to use it, the yuan can be used for trade and investment. But we are not like Libra and we don’t have an ambition to replace existing currencies.”

Rather than challenging foreign exchange regulatory frameworks and monetary systems, Beijing intends to persuade consumers and overseas merchants to gradually accept digital yuan payments, Zhou said.

China had learned a lesson from the reaction to the Libra (the name has since been changed to Diem) system – policymakers in other countries feared it would disrupt financial systems and undermine monetary sovereignty – and was therefore adopting a more cautious approach, Zhou said.

“Some countries are worried about the internationalization of yuan,” he said. “We can’t push them on sensitive issues and we can’t impose our will. We must avoid the perception of great power chauvinism.”

‘Red packets’ trial

Meanwhile, almost 20,000 purchases were paid for with digital yuan on within a 24-hours period starting at 8 pm Beijing time on December 11, as part of a trial scheme for the rollout of the new currency in Suzhou, a city in East China’s Jiangsu Province, Global Times reports

The Chinese e-commerce giant became the country’s first online platform to accept China’s new digital currency, after the Suzhou municipal government distributed 100,000 virtual “red packets” of 20 million yuan ($3 million) to local residents via a lottery in an effort to encourage spending during the Double Twelve shopping festival on Saturday. The red packets will be valid until December 27.

In addition to, about 10,000 physical shops in Suzhou participated in the trial.