The People’s Bank of China (PBOC) is considering using the digital yuan to settle services and commodities trades with Hong Kong. According to Di Gang, deputy director-general of the Digital Currency Institute of the PBOC, this would help companies avoid the difficulties of using a single high-cost, cross-border payment channel.
People’s Bank of China Eyes Digital Yuan Usage for Commodities and Services Settlements
The People’s Bank of China (PBOC) is examining the potential application of the Chinese central bank digital currency (CBDC), the digital yuan, for commodities and services settlements with Hong Kong. Di Gang, deputy director-general of the Digital Currency Institute of the PBOC, revealed the bank was considering this use case during the Hong Kong Fintech Week, an Asian finance conference.
Di explained that the cooperation between Hong Kong and the mainland could allow the trade and subsequent payment of natural gas, oil, and other services using the digital yuan. The introduction of the digital yuan would allow companies to avoid the traditional single payment channel, which features high-cost and low-efficiency operations compared to the Chinese CBDC activities, Di added.
Di stressed that other pilot applications could be considered between the mainland and Hong Kong to expand personal application scenarios and improve user experience.
The PBOC has also pioneered other applications to internationalize the digital yuan as a payment method for commodities, including oil. In October, reports indicated that Petrochina, one of the largest Asian oil companies, had settled a purchase of one million crude barrels in digital yuan, using the Shanghai Oil and Gas Trading Center as an intermediate.
Other clearing houses have also adopted the digital yuan as part of their payment options. In June, the Shanghai Clearing House, a top-three provider of securities settlement, announced support for digital yuan settlements for commodities in bulk, offering zero trading fees to incentivize its usage.
The usage of the digital yuan could also help Chinese companies sidestep economic sanctions, avoiding the use of traditional settlement channels. Back in August, experts expressed worries about the application of the digital yuan in the Mbridge project, a CBDC-based platform that, while still in its testing stages, would link the economies of China, Hong Kong, Thailand, and UAE, aiming to serve a trading market of more than $500 billion.
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