Finance Ministers of the G7 economies have kicked off the 2-day meeting in London on Friday, June 4. This is the first face-to-face meeting after the G20 meeting in February 2020 n Saudi Arabia.
The top things on agenda have been deciding the rules for the working of digital currencies issued by central banks and the rising concerns with China’s accelerated development of the Digital Yuan. Over the last few months, China has been aggressively testing the retail use of its CBDC with the recent tests held in the capital city of Beijing.
The G7 is hoping to bring China’s Digital Yuan into an international regulatory framework. Besides, there’s a growing concern that the Chinese government will keep the entire Digital Yuan transaction data to themselves even while using the CBDC for global transactions. As Nikkei Asia reports, this will not only infringe data privacy but can also be used as a tool for political gains and suppression of speech.
The Digital Yuan Economic Zone
Apart from the local use of Digital Yuan in China, there’s a strong belief that the Chinese government will use if Digital Yuan for transacting in the Belt and Road Initiative (BRI) across Asia and Europe. There’s a strong concern among the G7 that this could potentially give rise to a new economic zone centering around the nations participating in BRI.
Such an economic zone could also undermine the existing currency system based on the U.S. Dollar. Besides, a Digital Yuan-driven economic system can potentially reduce the impact of Western sanctions.
As the result, the G7 is calling for international laws that govern the working of CBDCs. Last October 2020, the G7 finance ministers also called for having such transparency. Central banks of top economies are also getting involved in creating their own central bank digital currencies.
The G7 has already outlined some foundational principles for CBDC. One such is that “a central bank should not compromise monetary or financial stability” using CBDCs. The European Central Bank (ECB) has recently raised concerns over the rise in use of other digital currencies for cross-border payments and stressed the need for having a CBDC in place.