China Has a Different Approach to Digital Currency Than Other Countries, Zhou Xiaochuan Says

What’s new: The digital currency being tested by China’s central bank is significantly different from the one recently defined by seven other central banks and the Bank for International Settlements, Zhou Xiaochuan, a former governor of the People’s Bank of China (PBOC), said Tuesday at the Budapest Eurasia Forum hosted by Hungary’s central bank.

China’s digital currency program, officially known as Digital Currency Electronic Payment (DCEP), focuses on improving its domestic retail payments system, while the seven other central banks pay great attention to cross-border payments and how to respond to Facebook Inc.’s Libra cryptocurrency initiative, Zhou said.

The seven central banks are respectively from the U.S., Canada, Japan, the U.K., Sweden, Switzerland and the European Union.

Under the DCEP framework, which operates through a two-tier system, the PBOC first issues digital yuan to commercial banks and other institutions, which then distribute the currency to the general public. Zhou said the system gives more incentives and responsibilities to commercial lenders and other institutions.

What’s the background: The PBOC is one of the world’s first major central banks to test out a digital currency.

Earlier this month, China’s southern megacity of Shenzhen used the digital yuan to provide residents with digital coupons totaling 10 million yuan ($1.5 million), which they could spend in designated shops capable of accepting digital yuan payments. The program is one of the latest moves to expand trials of the virtual currency that has been under development since 2014.

Related: In Depth: Facebook’s Cryptocurrency Ambition

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Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Marcus Ryder (marcusryder@caixin.com)

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