An Official Suggests Programmable Features for China’s CBDC
An official from China’s foreign exchange regulatory body has proposed the use of “programmable features” in China’s Central Bank-Backed Digital Currency (CBDC) to enhance monetary policy tools. China, along with other countries, is actively developing CBDCs, digital tokens issued and regulated by central banks. Currently, CBDCs primarily function as M0 currency, similar to physical cash. However, Lu Lei, the Deputy Administrator of the State Administration of Foreign Exchange (SAFE), suggests that central banks could utilize the programmable attributes of CBDCs to elevate their status to M2 currency, which includes deposits and savings.
Flexibility and Adaptability of CBDCs
The concept of “programmable features” in CBDCs revolves around their inherent flexibility. This means that parameters can be set and altered, allowing for various possibilities. For example, money could have an expiration date or be restricted for specific purposes. Lu Lei envisions the People’s Bank of China (PBOC) exploring these programmable features to adjust interest rates within the CBDC framework. The adaptability of CBDCs also offers central banks additional tools for macroeconomic management and fine-tuning economic stability.
Cross-Border Transactions and Trials
Cross-border transactions are another area where CBDCs show significant potential. Lu suggests that using CBDCs for such payments can greatly enhance safety, convenience, and inclusivity. Chinese state-owned banks have been actively participating in trials focused on cross-border CBDC transactions in collaboration with the Bank of International Settlements (BIS). These trials aim to evaluate the practicality and efficiency of CBDCs in facilitating international financial transactions.
The Current Status of China’s e-CNY
By the end of June, transactions involving China’s CBDC, known as the e-CNY, reached 1.8 trillion yuan ($249.33 billion). However, the e-CNY in circulation remains a small fraction, accounting for just 0.16% of China’s M0 money supply.
Hot Take: Programmable Features Unlocking Potential for China’s CBDC
The proposal to incorporate programmable features into China’s CBDC demonstrates the potential for enhanced monetary policy tools and macroeconomic management. By leveraging the flexibility and adaptability of CBDCs, central banks can adjust interest rates and fine-tune economic stability. Furthermore, utilizing CBDCs for cross-border transactions can improve safety, convenience, and inclusivity. Chinese banks’ active participation in cross-border CBDC trials signifies a commitment to exploring the practicality and efficiency of these digital currencies. While the e-CNY’s current circulation is relatively small, its growing transaction volume highlights its increasing importance in China’s financial landscape.
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