Legal framework needs to be ready before introducing China's official digital currency, head of the research institute of the central bank said during a forum held over the weekend.

Yao Qian, director-general of the Institute of Digital Money at the People's Bank of China, said supervision needs to be in place before officially introducing the currency.

"Apart from solving tech challenges, we need to build a legal framework. The key is to prevent systematic financial risks," he said.

He made the comment during the annual meeting held by Institute of Digital Finance of Peking University.

There is no specific timeline for deploying digital currency, he said.

China is actively preparing for a digital fiat currency, or official digital currency, since last year.

The government has shut down all cryptocurrency exchanges in the country.

Yao said there are a number of advantages that push the central bank to actively prepare for issuing the currency.

Deploying digital currency will be helpful to improve macroeconomic policy framework, according to Yao.

"Using digital currency helps the central bank adjust liquidity, because it is much easier to track circulation of the currency in digital format compared to normal currency," he said.

Digital currency also helps improve supervision capacity of the central bank, especially in supervising money laundering activities and tax evasion behaviors, he said.