China Soon to Legalize Digital Yuan and Ban Other Stablecoins, DCEP to Work With WeChat and AliPay

Since China has been actively working on testing its Digital Currency Electronic Payment (DCEP) system or the Digital Yuan, it is all set to draft a new law that legalizes the working of the Digital Yuan.

The latest report from the South China Morning Post (SCMP) shows that the Chinese central bank is working to resolve a few problems that emerged while testing the Digital Yuan over the last few weeks. At the same time, the People’s Bank of China (PBoC) is also working on establishing a legal foundation via an upcoming law revision.

Firstly, the new draft law will introduce Digital Yuan and include it as part of the country’s sovereign fiat currency. Secondly, the law will prohibit and ban any party that makes or issues Yuan-backed digital currencies aka stablecoins to replace the Renminbi in the market.

Speaking at the Bund Summit in Shanghai, Mu Changchun, the of PBoC’s digital currency research institute said that the central bank will allow the circulation of DCEP and converted just like the physical banknotes and coins.

“Its centralized management will be good to fight against cryptocurrencies and global stablecoins and prevent their erosion of currency-issuance rights,” he added.

China has been actively working on its Digital Yuan and more so after Facebook announced its Libra stablecoin last year in June 2019. China wants to take the first-mover-advantage by launching the Digital Yuan in the market. Over the last few weeks, China has actively tested the working of the Digital Yuan in four major cities of China including Shenzhen, Suzhou, Chengdu and Xiongan.

As per previous reports, China is likely to launch its Digital Yuan on a full scale by the 2022 Winter Olympics In Beijing.

There have been a few concerns regarding the privacy, safety and convertibility of the Digital Yuan. Mu said that the PBoC plans to make Digital Yuan accessible to the underprivileged groups.

However, he said that the central bank is aware of the risks associated with fake e-wallets. But he added that such situations will only strengthen PBoC’s oversight. “The PBOC will also face anti-counterfeit issues in the digital era, and we must lower the cost,” he said.

Mu also addressed the recent speculations that the central bank digital currency (CBDC) would threaten the existence of privately run mobile payment tools. He said that the government will work along with the big players like WeChat and Alipay.

“WeChat Pay and Alipay are just [electronic] wallets, while the DCEP is the money inside them,” he said. “They are not competitors.”