It is important to distinguish between developing a digital currency for currency digitalization and digitalization of assets or cryptocurrencies so that China can be more focused on preventing risks in the financial sector, said Fan Gang, a Peking University professor and a prominent advocate in China for economic reform.

Fast Facts:

  • In a keynote speech on “Global Economic Recovery: Certainty and Uncertainty” at the Huawei Intelligent Finance Summit 2021 taking place in Shanghai this week, Fan — the vice president of the China Society of Economic Reform — underscored the importance of financial technology innovation in driving digital transformation across industries.”The global pandemic is far from over. As the new engine of economic recovery, the most important component of the digital economy is not the production of digital equipment and digital technology itself, but the application of new information technology to transform various industries,” Fan said. “Digital finance is the driving force of the development of the digital economy.”
  • The Covid-19 pandemic had accelerated the trend towards digital payments and the introduction of a digital yuan marked a new phase in the digitization of fiat money, Fan said. “Now when a central bank wants to get information on a transaction, they need to get it through platforms, banks or financial institutions because that’s where the information resides. With digital renminbi, the central bank will have access to such information immediately.”
  • Central banks will not displace financial institutions as fiat money becomes digitalized, Fan said. “The central bank will not do the job of financial institutions, they will not be able to issue microloans to SMEs, that’s not possible… The transformation can exist in many forms. It will inspire new ecosystems, new forms of activities.”
  • “Cryptocurrency is not currency… It is an asset defined by other currencies,” Fan said, adding that cryptocurrencies were highly speculative and not a good store of value due to their price volatility.

See related article: How does China see its CBDC and its use in cross-border payments?