China | People's Bank of China seeks to strengthen the development of digital currency DCEP and proposes legislation to prohibit the issuance of private digital currencies

On the evening of the 23rd, close to 8 o'clock, the People's Bank of China issued a statement stating that, in order to implement the financial work discourse of General Secretary Xi Jinping of the Communist Party of China and to implement the legislative plan of the 13th National People's Congress Standing Committee, it will actively promote the revision of the Banking Law. It explicitly prohibits any individual or entity from issuing digital tokens to replace the circulation of the renminbi. Forbes also reported on this matter, using the revision of the Banking Law by the People's Bank of China as the legal basis for the digital renminbi DCEP.

Strengthening the Ban on the Renminbi

Although China has long banned fundraising activities such as ICOs and STOs, the recent amendment to the banking law highlights an attempt to strengthen the sovereignty of the Renminbi, rather than just protecting consumers. According to the announcement, the main purpose of the amendment is to "improve the regulations on Renminbi management." The draft regulations state that Renminbi includes physical and digital forms, providing a legal basis for issuing digital currency; to prevent risks from virtual currencies, it explicitly prohibits any unit or individual from creating and selling digital tokens (Articles 19 and 22).

Article 22: Renminbi has no substitutes

"Article 22 (Tokens): No unit or individual shall create or sell tokens, certificates, or digital tokens to replace the circulation of Renminbi in the market."

From the description, it can be interpreted that private entities are not allowed to create or issue digital Renminbi to replace the circulation of Renminbi, aligning with China's current logic for the planned digital Renminbi DCEP.

Comparison with Digital USD

Although the U.S. government has not issued a digital USD, many privately issued digital stablecoins are pegged to the USD, reflecting the strength of the USD. For example, Tether's 1:1 pegged USD stablecoin USDT, with a current market value of $16.1 billion, is the most commonly used stablecoin in the cryptocurrency industry.

Major U.S. exchanges like Coinbase and Kraken offer trading pairs with USDT and have not prohibited its circulation.

China's Foreign Exchange Controls

The foundation of the amendment to the People's Bank of China Law is:

"To maintain currency stability, control the overall gate of currency, resolutely fight against major financial risks, safeguard economic and social stability, continuously strengthen financial services for private small and micro enterprises and poverty alleviation, guide finance to better serve the real economy, and other major issues as the core and main line of reform, running through the entire process of the amendment work."

It can be understood that China, in order to maintain internal financial stability, is amending laws to prevent situations that may render its monetary policy ineffective while advancing in technology.