digital currency Photo: VCG

China’s new digital currency and its cross-border payment system is expected to break the monopoly of the US dollar payment system and establish a fairer, more efficient, and more advanced global cross-border payment system in the face of a possible US financial blockade, said Chinese experts.

China needs to use the digital currency electronic payment (DCEP) plan rolled out by the People's Bank of China (PBC) to build a new cross-border payment and settlement system to help Chinese tech companies offset the threat of US sanctions that could cut them off from cross-border settlement, wrote Ju Jiandong, director of the Center for International Finance and Economics Research at Tsinghua University in a journal.

There are concerns that the US will take financial measures against Chinese high-tech industries, enterprises and individuals by cutting off their access to the US-dominated Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the New York-based Clearing House Interbank Payments System (CHIPS), he wrote.

To achieve cross-border payment, the DCEP can be used as the medium currency for cross-border business transactions by high-tech enterprises with pricing and settlement functions, Ju said. The central bank should be responsible for providing, withdrawing and clearing of digital renminbi to ensure that the balance of the digital currency in the platform remains unchanged after the transaction is completed.

He wrote that attracting enough users and breaking through the limitations of the original system's network are vital for the success of the new platform. In addition, it is also important to set a reasonable exchange ratio between the digital renminbi and other legal currencies, to make it both attractive to users and resistant to speculation.

Ju pointed out that in the design of the system the central bank should only be responsible for the supply, supervision, and settlement of digital renminbi, leaving the application scenarios of cross-border payment and settlement to the market-oriented platform entities.

In addition, the central bank, as the regulatory body, should be responsible for identification of actual needs, compliance review and cracking down on illegal activities such as money laundering, terrorist financing and tax evasion.