China will dramatically expand its pilot program for digital currency to include all major large cities, the country’s Commerce Ministry said Friday.
To date, the central-bank-led trial program has been under way in four cities and in places related to the 2022 Beijing Winter Olympics. With Friday’s announcement, the pioneering initiative to launch an electronic payment system will cover 28 provinces and cities, including Beijing and Shanghai, as well as the neighboring cities of Hong Kong and Macau.
The ministry said the initiative will “carry out digital RMB pilot programs in the Beijing-Tianjin-Hebei region, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and the pilot regions in the central and western regions where conditions permit.”
China, like the rest of the world, mainly relies on the U.S. dollar payment system in international deals, which makes it vulnerable to possible U.S. sanctions. The government has been researching and developing the digital currency since 2014, in part as a way of shifting away from U.S. dollars and bypassing international financial systems subject to U.S. law.
The risks that the country’s banks are sanctioned by the U.S. are becoming increasingly real after the Trump administration sanctioned 11 mainland and Hong Kong officials for their role in suppressing freedom in Hong Kong. China’s economy “for the foreseeable future will be dependent on U.S. dollar transactions,” Republican Sen. Pat Toomey, a co-sponsor of legislation to sanction Chinese officials for violating Hong Kong’s independence, said in May.
Chinese officials and economists have in recent months been very outspoken about the possibility that the Trump administration would go for the so-called “nuclear option” and cut China off from the dollar payment system. Fang Xinghai, a vice chairman at the China Securities Regulatory Commission, said that China must prepare, “real preparations, not just psychological preparations,” Fang said at a forum organized by Chinese media outlet Caixin.
Yu Yongding, a senior fellow with the Chinese Academy of Social Sciences, a government think tank, said that one scenario would be Washington imposing sanctions on Chinese banks, as it did in 2012 on the Bank of Kunlun, a regional Chinese lender for financing deals with Iran.
Yu said that the U.S. may not have reached the point where it wants to kick China out of SWIFT, the international financial system that provides a network that enables banks worldwide to send and receive information about financial transactions.
“But China must take action and prepare in advance to prevent accidents just in case,” Yu said last Wednesday at an event organized by a state media.
In Friday’s statement, the Commerce Ministry said the government’s effort is aimed at “adapting to the profound and complex changes in the domestic and international environment,” and “hold fast to the bottom line and prevent and control risks.”