A Study on the Creation, Impact and Legal Issues of Crypto Special Drawing Rights by Leo Zeng

Author:Leo Zeng
Language: eng
Format: epub, pdf
ISBN: 9789819999750
Publisher: Springer Nature Singapore

Currently, the development and experimentation stages of sovereign cryptocurrencies are ongoing in various countries, and many specific regulations have yet to be established. Discussions are also underway regarding the legal and technical regulations for the supervision of sovereign cryptocurrencies.

Although sovereign cryptocurrencies are issued by a government’s central bank or its monetary authority, the laws of sovereign states often only specify the legal status and legal tender of paper currency. Therefore, governments of sovereign states also need to modify corresponding laws and regulations to give sovereign cryptocurrencies legal status. For example, Article 16 of the People’s Bank of China Law states, “The legal currency of the People’s Republic of China is Chinese yuan. All public and private debts within the territory of the People’s Republic of China shall be paid in Chinese yuan.” Article 20 specifies: “No organizations or individuals may produce or sell tokens or digital tokens to replace Chinese yuan in circulation in the market.” In October 2020, China issued a draft amendment to the People’s Bank of China Law and an explanation of the draft amendment, which included Article 19 stating: “Chinese yuan includes physical and digital forms,” and Article 22 stating: “No organizations or individuals may create or sell tokens or digital tokens to replace Chinese yuan in circulation in the market.”27 However, these legal provisions only establish that digital currency has the same legal status as paper currency, and the specific legal status of DC/EP needs to be more clearly defined in relevant laws and regulations, such as the People’s Bank of China Law, the Commercial Bank Law, and the Regulations on the Administration of Chinese yuan, to ensure the legal currency status and mandatory circulation of China’s sovereign cryptocurrency.28 In addition, future legislation needs to specify the characteristics, styles, and production methods of DC/EP, which are not currently included in the provisions of the People’s Bank of China Law regarding the denominations, patterns, and styles of Chinese yuan. The legal effectiveness of DC/EP also requires unanimous approval by the National People’s Congress or its Standing Committee to have sufficient national credibility support.

Moreover, while sovereign cryptocurrencies are similar in form to traditional bank accounts, Alipay, WeChat, and other electronic payments, they focus more on M0 replacement. According to traditional currency theory, M0 refers to cash in circulation. Correspondingly, M1 refers to M0 plus demand deposits, M2 refers to M1 plus personal deposits, time deposits of units, foreign currency deposits, margin deposits of securities companies, and other deposits, and M3 refers to M2 plus financial bonds, commercial bills, large negotiable certificates of deposit, and other financial assets.29 For the most basic currency M0 replacement, the currency authority places greater emphasis on ensuring the legal currency status and cash management and anti-money laundering requirements of M0. For example, in the current design of DC/EP in China, it is stated that it focuses more on M0 replacement than M1 or M2 replacement. Commercial banks, as the second-level distribution institution, need to deposit full reserves with the Central Bank of China in exchange for DC/EP.

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