China is making extra efforts to create the first central bank-issued digital currency (CBDC) and legalize its commercial usage. The People’s Bank of China announced a call for public feedback on a new draft law, aiming to further clarify the legislations around the DC/EP stablecoin, dubbed as digital yuan, and actually legalize it as a form of payment.
In Chapter 3 of the “Law of the People’s Republic of China on the People’s Bank of China,” the PBoC proposes several overhauls. The most noticeable change in the law, however, is that China’s native currency, the Renminbi (RMB), “includes both a physical form and a digital form.” The new amendment legalizes the DC/EP stablecoin as a “legal tender,” which would be a green light for China’s biggest state-run bank to continue piloting and expanding its digital yuan programme and even rolling it out for official usage.
However, the amendments also seek to eliminate any competition of the new currency by creating entry barriers for any individual or entity that issue digital products which may replace the digital yuan’s “market circulation.”
“For anyone that violates such regulation, the PBoC will halt such activities and forfeit any proceed from the making and selling of yuan-backed digital tokens and issue a fine that is up to five times of the involved proceeds,” the proposed amendment reads.
The text in the proposition effectively bans competitors of DC/EP. The PBoC explains that the measure is needed for managing the money supply, which can be difficult if private entities joined the market. Japanese financial news outlet Nikkei even reported that the ban on competitors would shut the door for Facebook’s Libra stablecoin project in China.
Meanwhile, as China prepares for regulatory clarification and proper legal status of its digital yuan, the Swiss central bank and the Bank for International Settlements (BIS) have announced plans to run trials of a central bank digital currency by the end of 2020.
Benoit Coeure of the Bank for International Settlements revealed the joint trial at a summit in Shanghai last week. Coeure noted that the Swiss National Bank and the BIS would launch the new CBDC project in proof-of-concept before the end of this year.
“The Swiss proof of concept would be a precursor to experimenting with the currency in retail settings. The trial will also allow the banks to see how the technology syncs with existing payment systems, as well as providing more effective routes to monitoring compliance,” Coeure added.
The joint operation between the Swiss national bank and BIS started back in October 2019. Officials from Switzerland’s central bank, however, commented that the new digital currency would be primarily used for interbank settlements and institutional transfers, rather than a fiat currency substitute, like China’s DC/EP.