China’s Central Bank Runs a Cross-Border Trial of Digital Yuan
According to the state-run Shenzhen Special Zone Daily newspaper, the People's Bank of China is now ready to run a trial of its digital yuan through cross-border payments.
China’s central bank is running a one-day pilot program under which selected Hong Kong residents can use the central bank digital currency (CBDC) as a payment method in the neighboring city of Shenzhen, across the border between the special administrative region and South China's Guangdong Province.
Since late last year, China has been accelerating the rollout of its digital yuan. So far, PBoC has been limiting its digital currency testing to retail payments on the Chinese mainland. Early last week, the cross-border trial of virtual yuan also took place.
In December, the Hong Kong Monetary Authority (HKMA), Hong Kong’s de facto central bank, announced that it was preparing for “technical pilot testing” of the CBDC for cross-border payments in collaboration with the PBOC.
Hong Kong remains the largest offshore market for the yuan. In 2019, it settled 44.9% of cross-border yuan payments and receipts equal to 8.83 trillion yuan ($1.3 trillion), according to the PBOC's latest annual RMB Internationalization Report from August.
According to the state media report, Hong Kong residents who travel to Shenzhen regularly can register a digital wallet with a daily transaction limit of up to 50,000 yuan (about $7,613) after verifying their identity with their mainland travel permit.
Those who do not have the permit can use their phone number to open a digital wallet, bringing the daily transaction limit down.
The pilot program is in line with China’s five-year plan published recently. The policy blueprint for the country's economic and social development for 2021 to 2025 includes a proposal to “steadily promote research and development of the digital currency.”
Over the next few years, policymakers plan to expand the testing of the CBDC in several regions, including the Guangdong-Hong Kong-Macao Greater Bay Area. The PBOC’s digital currency research institute has also joined HKMA's counterpart to facilitate cross-border payments at the wholesale level and solve problems associated with cross-border fund transfers.