Economic Daily: Why launch digital RMB?

At present, central banks and regulators around the world are paying more and more attention to digital currencies. According to a recent report released by the Bank for International Settlements, as of mid-July, at least 36 central banks around the world have released central bank digital currency plans. So why launch central bank digital currencies? What are the advantages of digital currencies? What impact will it have on the financial system?

First, the continued spread of the COVID-19 pandemic around the world has further increased the demand for paperless transactions, and digital currency can achieve the precise allocation of relief funds during the epidemic, which has become a catalyst for central banks around the world to accelerate research on digital currency.

Zhou Maohua, an analyst at the Financial Markets Department of Everbright Bank, said that there are similarities and differences in the motivations of central banks in developing digital currencies. On the one hand, countries are interested in the financial changes that digital currencies and the financial technology behind them may trigger, and hope to seize the leading edge of digital currency technology to avoid monetary sovereignty falling into the hands of the private sector that lacks necessary constraints. On the other hand, there are also differences among central banks. Some hope to improve the efficiency of financial transactions by studying and using digital currency technology; some hope to reduce the negative impact of the US dollar hegemony on their economy by developing digital currency; and some are more inclined to pragmatism and hope to promote international cooperation and cross-border payments.

Secondly, digital currency has many advantages. "It helps to reduce social management costs, reduce the high costs of issuing and circulating traditional paper currency, improve the convenience, security and transaction efficiency of people's payment and settlement, and better support economic and social development," Zhou Maohua said.

Industry insiders said that the acceleration of digital currency development and testing by various countries is essentially a competition for discourse power in the field of science and technology. The first to be developed and standardized is likely to become the global standard, which is of special significance for the competition for standard power in the digital field.

"In recent years, with the development of distributed ledger and encryption technology, private currencies in the form of virtual assets such as Bitcoin and global stablecoins have emerged, starting a new round of competition and game, attempting to replace cash in circulation to gain profits. In order to resist the erosion of these private currencies on legal tender and safeguard monetary sovereignty, it is necessary for the central bank to use new technologies to digitize cash in circulation," said Fan Yifei, Deputy Governor of the People's Bank of China.

The "China Financial Stability Report (2020)" recently released by the People's Bank of China pointed out that with the continuous deepening of the information revolution and the rapid development of the digital economy, the international community and major economies have paid close attention to the research and development of central bank digital currencies (hereinafter referred to as "CBDC"). Sweden and other economies have entered the CBDC pilot testing phase, some economies are in the research and development phase, and some economies are still demonstrating the feasibility of CBDC. Due to the differences in the research and development background, goals, and designs of CBDC in various economies, the potential impact on the financial system is also different.

Experts said that CBDC can help improve payment efficiency, reduce payment costs, and promote inclusive finance. Retail CBDC is generally used as a cash supplement, which is efficient and convenient, complements existing electronic payment tools, and enhances the competitiveness of the payment market. Interest-bearing CBDC is not only safer than electronic payment tools, but also has a savings function, and has a strong substitutability for existing electronic payment tools. Wholesale CBDC can help improve large-value payment settlement, improve cross-border payment efficiency and security, reduce payment costs, and promote international trade and financial transactions. At the same time, in areas where traditional financial services are underdeveloped, CBDC relies on digitalization and security advantages, through mobile clients and network communications, to improve the coverage and convenience of financial services and enhance the level of financial inclusion.

In addition, CBDC can help improve anti-money laundering, anti-terrorist financing, and anti-tax evasion capabilities. Unlike cash, which is used completely anonymously, CBDC can achieve controllable anonymity, improve customer identification capabilities, and improve the efficiency and accuracy of identifying illegal and criminal activities such as money laundering, terrorist financing, and tax evasion while protecting users' reasonable privacy.

There is also a view that the promotion of digital currency is closely related to the internationalization of the RMB. Zhu Min, dean of the National Institute of Finance at Tsinghua University, once publicly stated that digital currency is the commanding height of future currency market competition. As the world's second largest economy and the world's second largest financial market, China has a huge market for e-commerce and electronic circulation industries, and the development and application of digital currency is very important. The development of digital currency is an important field and channel for the internationalization of the RMB in the future.

Disclaimer: This website has the final editing rights for all articles published on this website. All works on this website are original works of Bitcoin Home or reprinted from the Internet. The purpose of reprinting is to convey more information, which does not mean that this website agrees with its views and is responsible for its authenticity. Any disputes have nothing to do with this website. If there are any problems with the content, copyright and other issues of the works, please contact this website as soon as possible.