China Drafts Law to Legalize Digital Yuan While Banning Competitors

Jafrin  |  Oct 29, 2020

The People’s Bank of China (PBoC) has drafted a new law that seeks to legalize digital yuan while banning the circulation of yuan-pegged digital tokens. The move intends to outlaw any digital currencies that seek to compete with China’s CBDC.

PBoC Accepting Public Feedback on Draft Revision

Last week, China’s central bank has also published a notice that it is accepting public feedback on the revision of the drafted amendments until November 23.

The draft law intends to amend the “Law of the People’s Republic of China on the People’s Bank of China.” This law has been in place operating since December 27, 2003. The law describes the mandate, organizational structure, powers, and restrictions of China’s central bank.

The new draft law will officially legalize the digital currency electronic payment (DCEP) or China’s central bank digital currencies.

PBoC Will Monitor Financial Surveillance Through Digital Yuan

Even though China’s central bank has conducted extensive pilot tests on the digital yuan, the new draft law will now make this an official legal tender. While it intends to outlaw any competitors to China’s digital yuan, as the bill prohibits any individuals or entities from circulating the yuan-pegged digital tokens that might replace the digital yuan.

On violating the regulations, the bill highlighted, “For anyone that violates such regulation, the PBoC will halt such activities and forfeit any proceed from the making and selling of yuan-backed digital tokens and issue a fine that is up to five times of the involved proceeds.”

Meanwhile, the Japanese financial newspaper Nikkei reported that the new bill could completely shut off Facebook Libra’s entry into China. The report also stated that financial surveillance in China will now be highly monitored through the implementation of digital yuan, adding

“If the digital yuan catches on, Chinese regulators will gain a better grasp of overseas transactions, allowing them to prevent rapid fund outflows more easily.”

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