Monetary authorities will need to find answers to issues beyond the basic design architecture, including the regulatory framework and the competition relationship with the existing electronic payment tools, ahead of the official debut of the national digital currency in China, experts said on Monday.
If China launches its digital currency as a legal tender, at the present stage, it may have some "transitional features", which means maintaining the existing market operation mechanism and monetary policy transmission system, Li Lihui, former president of the Bank of China, said at a seminar hosted by Peking University's National School of Development on Monday.
The government-backed digital currency will "gradually" replace the traditional currency and payment instruments. Before that, there is no need to rebuild financial infrastructure or currency issuance and management structure, which can save investment and is conducive to risk management and control, said Li.
Central bank officials called the sovereign digital currency the digital currency and electronic payment, or DC/EP. The latest information from the central bank was that some pilot areas will be chosen for the DC/EP experiments.
Analysts said that the pilot program for the Chinese sovereign digital currency in select regions may happen this year, although some legal issues still need to be sorted out, such as whether the basic laws need to be revised.
According to Sun Tianqi, chief accountant of the State Administration of Foreign Exchange, it is still not clear on how the DC/EP would be regulated. When it comes to the issue of cross-border usage of digital sovereign currency, the global regulatory environment is more complicated. More issues need to be figured out, including international regulatory coordination, before the launch of the digital currency.
Huang Zhen, director of the Institute of Financial Law of Central University of Finance and Economics, said that for the pilot DC/EP programs, the regulatory sandbox can be introduced to test the digital currency ecosystem within a limited context, while the experimental process can be supervised by regulators.
"China needs to speed up the development of digital currency supervision and sovereign digital currency issuance mechanism," said Li, who is also head of the blockchain research working group at the National Internet Finance Association of China.
"As digital currency will be at the core of the future global digital economy competition, it is necessary to accelerate the research of the feasible paths of China-led global digital currency," he said.
How the DC/EP will compete with the existing electronic payment methods is another issue that needs to be studied, analysts said, as the new central bank digital currency may change the current business structure of the payment sector.
Yang Tao, deputy director of the National Institution for Finance and Development, a Chinese financial think tank, said that at the current stage, the DC/EP could be a diversified complement of third-party electronic payment platforms.
Unlike WeChat or Alipay, the two largest mobile payment platforms in China, the DC/EP transaction can be offline and separated from bank accounts, which are also its "advantages" over the two popular third-party payment platforms. Whether the DC/EP can replace WeChat and Alipay will be finally determined by the market, depending on its convenience, usage cost and public acceptance, said Li.