Zhou Xiaochuan Urges China to Prioritize Security and Prevent Abuse in CBDC Development
Zhou Xiaochuan, the former governor of China’s central bank, has emphasized the importance of security and abuse prevention as China develops its Central Bank Digital Currency (CBDC) or e-CNY. Speaking at a forum in Beijing, Zhou highlighted the critical role of security in finance, particularly with regard to currency. He also stressed the need for measures to prevent abuse, including combatting money laundering and arms trading facilitated by cryptocurrencies and stablecoins.
China’s Progress with CBDC
The People’s Bank of China has been actively testing and piloting its CBDC. The bank launched a pilot app in January 2022 and expanded its trial to 26 locations in 17 cities and regions across the country. This includes major cities like Beijing, Shanghai, Shenzhen, and Suzhou.
A Two-Tier System for e-CNY
Zhou emphasized the importance of developing the e-CNY in a two-tier system. Currently, the e-CNY operates on a two-tier architecture, with the People’s Bank of China issuing the currency on the first layer and commercial institutions forming the second layer. This design allows for dynamic evolution, improved service levels, and innovation through competition.
Exploring Cross-Border Transactions
Cross-border transactions are a key area of exploration for CBDCs, according to Zhou. He highlighted the technological, systemic, and policy aspects involved in facilitating cross-border payments using CBDCs. Hong Kong is already actively testing the e-CNY for cross-border payments and has entered the second phase of technical testing.
Programmable Features for Improved Monetary Policy
Lu Lei, a Chinese foreign exchange official, suggested that the programmable features of CBDCs could enhance the effectiveness of monetary policy tools. Currently positioned as M0 currencies, CBDCs could potentially be expanded to include deposits and savings based on their programmable features. This would allow central banks to adjust rates and manage the economy more effectively. Lu expected the People’s Bank of China to further explore and utilize programmable features in their CBDC.
Hot Take: Prioritizing Security and Preventing Abuse in CBDC Development
As China continues to develop its CBDC, it is crucial for the country to prioritize security and prevent abuse. Zhou Xiaochuan, a former governor of China’s central bank, has emphasized the need for robust security measures and efforts to combat money laundering and arms trading facilitated by cryptocurrencies and stablecoins. The progress made by the People’s Bank of China in testing and piloting its CBDC, along with the adoption of a two-tier system, shows the country’s commitment to innovation and competition. Exploring cross-border transactions and leveraging the programmable features of CBDCs can further enhance monetary policy and economic management. Overall, ensuring security and preventing abuse are essential for the successful implementation of a digital currency in China.
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