In the latest speech to the attendees at a Eurasia Forum conference on Oct. 27, the former governor of the People’s Bank of China (PBoC) Zhou Xiaochuan pointed out the substantial difference of digital yuan compared to similar digital encrypted currencies in in the Group of Seven (Canada, France, Germany, Italy, Japan, the U.K., and the U.S.), saying that China’s CBDC is focused on melting away dollar dominance and becoming a major medium of exchange in the country. He stated, “We [need] to prevent dollarization. This is one of the major designing points of the Chinese DCEP.” China’s central bank recently introduced its launch of a pilot program for digital yuan experiment through a $1.5 million giveaway to 47,500 Shenzhen citizens. The PBoC also drafted a legislation that provides the regulatory context and legitimacy for the CBDC.
Why it matters: China is going ahead with the launch of its CBDC, which may be used on a wider scale in the coming months. This new digital currency is unlikely to be used by people outside of China, however Chinese trading partners may use it at a state level. It is very likely that we will see other central banks follow in China's footsteps, and begin to issue new digital currencies. Central banks have assumed the role of central planners, and they will want new tools to connect directly with the people. By using a CBDC, a central bank can send money to people directly, without the involvement of the government.