Yi Gang: Digital RMB mainly meets domestic retail payment needs

On November 9, Yi Gang, governor of the People's Bank of China, delivered a video speech at the 30th anniversary celebration of the establishment of the Bank of Finland's Emerging Economies Institute, sharing the progress of the research and development of the digital RMB and issues related to privacy security and financial stability.

He said that the use and promotion of the central bank's digital currency should follow the principle of marketization. That is to say, we will issue as much as the people need to exchange.
He also said that the current design and use of digital RMB is mainly to meet domestic retail payment needs. Cross-border and international use is relatively complex, involving legal issues such as anti-money laundering and customer due diligence, which are also being discussed in depth internationally. Given the complexity of cross-border use, digital RMB is currently mainly used to meet domestic retail needs.

The following is the full text:

Ladies and gentlemen, good afternoon!

I would like to sincerely congratulate the Bank of Finland’s Emerging Economies Institute on its 30th anniversary and thank Governor Rehn for inviting me to attend this commemorative event to discuss the important topic of central bank digital currencies (CBDCs) with other central bank governors. I would like to briefly introduce the progress of the development of the digital RMB and our work on protecting privacy and maintaining financial stability in the process.

1. Progress of Digital RMB Research and Development

In recent years, especially after the outbreak of the COVID-19 pandemic, global electronic payments, especially mobile payments, have developed rapidly. Last year, the amount of mobile payments in China increased by nearly 25% year-on-year, and the current penetration rate has reached 86%, which has greatly supported the fight against the epidemic while facilitating the lives of residents. However, at present, electronic payment tools are mainly provided by the private sector, which may pose risks such as market segmentation and privacy leakage. CBDC allows the central bank to continue to provide the public with reliable and secure payment methods in the digital economy era, while improving payment efficiency and maintaining the stability of the payment system.

At present, more than 110 countries have carried out CBDC-related work to varying degrees. For China, the development of digital RMB is mainly to meet domestic retail payment needs, enhance the level of inclusive financial development, and improve the operating efficiency of the currency and payment system.

The People's Bank of China began to study legal digital currency in 2014, and built China's first generation of central bank digital currency prototype in 2016, and proposed basic features such as M0 positioning, two-tier operating system, and controllable anonymity. Since 2017, the People's Bank of China has cooperated with commercial banks, Internet companies, etc. to jointly develop digital RMB. At the end of 2019, the digital RMB began to be piloted, currently including ten cities and the 2022 Beijing Winter Olympics. Some cities have also launched digital RMB green travel, low-carbon red envelopes and other usage scenarios. In July this year, the People's Bank of China released the digital RMB white paper. As of October 8 this year, the digital RMB pilot scenarios have exceeded 3.5 million, with a total of 123 million personal wallets opened and a transaction amount of approximately 56 billion yuan.

Next, we will improve the design and use of digital RMB in a targeted manner according to the pilot situation. First, we will refer to the management ideas of cash and bank accounts to establish a management model suitable for digital RMB; second, we will continue to improve settlement efficiency, privacy protection, anti-counterfeiting and other functions; third, we will promote the interaction between digital RMB and existing electronic payment tools to achieve the unity of security and convenience; fourth, we will improve the construction of the digital RMB ecosystem and enhance the inclusiveness and availability of digital RMB.

2. Effectively respond to the impact of CBDC on financial stability and strictly protect privacy

The impact of CBDC on monetary policy and financial stability depends mainly on the design of CBDC. If CBDC is more similar to cash, the impact will be relatively limited. However, if it has the attributes of financial assets such as deposits, it may trigger deposit substitution, leading to a contraction in the scale of financial intermediaries and reducing the efficiency of monetary policy transmission.

In view of this, the People's Bank of China properly developed and designed a plan to effectively reduce the negative impact. First , we adhere to the M0 positioning of the digital RMB, do not pay interest, and reduce competition with bank deposits. Secondly , a two-tier operating system is adopted, that is, the central bank implements centralized management to ensure the ability to regulate currency issuance and monetary policy; commercial banks and payment institutions act as intermediaries to exchange digital RMB for the public and provide payment services. Thirdly , institutional frictions such as wallet balance limits and transaction amount limits are set to minimize the risk of bank runs. At the same time, during the pilot process, the impact on monetary policy, financial markets, and financial stability is also an important test content.

CBDC needs to properly handle the relationship between privacy protection and crime prevention. At present, a basic consensus of the international community is that CBDC cannot be completely anonymous, otherwise it will increase the risk of illegal transactions such as money laundering and terrorist financing, and harm the public interest. However, some people also question whether the central bank's digital currency will lead to the central bank controlling too much information?

We attach great importance to the protection of personal information in the digital RMB, and have adopted corresponding institutional arrangements and technical designs. In terms of anonymity, the digital RMB adopts the principle of "small amounts are anonymous, large amounts can be traced according to law", and follows the principle of "minimum and necessary" when collecting personal information, and the amount of information collected is less than that of existing electronic payment tools. At the same time, the storage and use of personal information are strictly controlled. Unless there is a clear legal requirement, the People's Bank of China shall not provide relevant information to any third party or government agency. Recently, China has also issued a number of laws such as the "Data Security Law" and the "Personal Information Protection Law" to strengthen data security and privacy protection from the legislative level.

3. Next Steps

We have always emphasized that the use and promotion of the central bank's digital currency should follow the principle of marketization. That is to say, we will issue as much as the people need to exchange. China has a vast territory, a large population, and great regional development differences. These factors and residents' payment habits determine that cash will continue to exist for a long time in the foreseeable future. As long as there is demand for cash, the People's Bank of China will not stop the cash supply or replace it by administrative order.

The design and use of digital RMB are mainly to meet domestic retail payment needs. Cross-border and international use is relatively complex, involving legal issues such as anti-money laundering and customer due diligence, which are also being discussed in depth internationally. Given the complexity of cross-border use, digital RMB is currently mainly used to meet domestic retail needs.
The People's Bank of China is willing to strengthen cooperation with central banks and international organizations in the field of digital currency. We have jointly launched the Multilateral Central Bank Digital Currency Bridge (mCBDC Bridge) project with the Bank for International Settlements, the Bank of Thailand, the Central Bank of the United Arab Emirates and the Hong Kong Monetary Authority to jointly study the role and technical feasibility of central bank digital currencies in cross-border payments. We have also conducted technical exchanges with the European Central Bank on the design of CBDC. In the future, we will continue to discuss the standards and principles of CBDC with the central banks and international organizations present in an open and inclusive manner, and properly respond to various risks and challenges in the process of promoting the development of the international monetary system.

Finally, I wish this conference a complete success! Thank you all!