China’s central bank wants to legalize the digital yuan. In a new draft law, the bank also proposed banning any yuan-pegged digital tokens, effectively killing off any competitor to its central bank digital currency.
The People’s Bank of China published a statement late last week soliciting feedback from the public on the new draft law. Citizens have until November 23 to submit their feedback on the drafted amendments.
The draft law is seeking to amend the “Law of the People’s Republic of China on the People’s Bank of China.” This law has been in place since its adoption on December 27, 2003. It outlines the mandate, organizational structure, powers and restrictions of the PBoC.
In Chapter 3, it states that “the legal tender of the People’s Republic of China is the Renminbi (RMB).”
This is one of the key chapters the new draft law is seeking to amend. Under Section 3 of the new draft, it states, “Renminbi includes both a physical form and a digital form.”
This amendment will officially legalize the digital currency electronic payment (DCEP), China’s long-awaited CBDC. While the PBoC has conducted extensive pilots already, this amendment will now make it an official legal tender.
The PBoC’s draft is also seeking to quash any competitor to its digital yuan. Under the same section, the bill prohibits any individual or entity from making or issuing any tokenized note or digital token that may replace the Renminbi’s market circulation.
It further states, “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.”
In banning competitors, the PBoC is acting on concerns that managing the money supply would be more difficult if it allows private digital currencies in the market. As per a report by Japanese financial newspaper Nikkei, this amendment could also effectively shut the door for Facebook’s Libra in China.
The newspaper also reports that the digital yuan will increase the PBoC’s financial surveillance capabilities.
“If the digital yuan catches on, Chinese regulators will gain a better grasp of overseas transactions, allowing them to prevent rapid fund outflows more easily.”
Just recently, the PBoC revealed that it has been working with local authorities to crack down on gambling sites that use tether to launder funds. These sites, which are usually overseas, rely on digital currencies to bypass the central bank’s strict capital outflows control.
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