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e-RMB: Design, Trends, and Oversight

Feb 03-2023   



The e-RMB has a clear design: it’s a central bank digital currency in the service of individual users and featuring a two-layered issuing mechanism through loose coupling with bank accounts, said Prof. Huang Yiping in a financial summit in late 2022.

 

In his understanding, the e-RMB primarily serves payment purposes, which is why it’s officially interpreted as a substitute for M0, and not M1 or M2. Embedded in its design are a two-layered issuing mechanism and interest-free payment, thereby reducing the potential negative impact on banks and other financial intermediaries to the largest possible degree, he said.

 

Yet more balancing work is cut out. Privacy protection, for one, must be sound; otherwise, the public might be unwilling to use it. Digital trading should be made part of the national taxation system, but there are examples showing that positive or negative motivations can change people’s behavioral modes. As a result, some believe that the e-CNY might be able to enhance financial efficiency and speed up currency circulation, but others are concerned about the likelihood of the disintermediation of banks, which could lead to an increase in financing costs and slowdown in economic growth. Prof. Huang believed that the design of central bank digital currencies would largely determine whether they might trigger new forms of financial risks or allow central banks to more accurately monitor and tackle new risks.

 

The e-CNY, which is only for individual users at the moment, might be extended to institutions in the future, according to one speculation. As the People’s Bank of China has participated in the mBridge project, cross-border payment could become an important function of the e-CNY in the future. Also, it could not be ruled out that the central bank might pay interests to holders of e-CNY, though it is not doing so right now. Another speculation concerns the possibility of private institutions issuing stablecoins backed by e-CNY, but this is a highly sensitive issue that deserves thorough weighing, said Prof. Huang.

 

It's also speculated that the central bank is partly motivated to aggregate and concentrate payment data, which currently is mainly handled by the two independently run payment systems: Alipay and WeChat Pay. For Prof. Huang, this raises a new question: would the central bank be too concerned about data security instead of giving full scope to the productivity of data analytics?

 

As for cryptocurrencies, Prof. Huang advocated reinforcing and renewing their supervisory modes. For now, the Chinese government bans cryptocurrency trading in China, primarily due to daunting challenges related to money laundering. Over the long term, he proposed following new-fangled digital technologies to gain valuable inspirations for the financial system.

e-RMB: Design, Trends, and Oversight

Feb 03-2023   



The e-RMB has a clear design: it’s a central bank digital currency in the service of individual users and featuring a two-layered issuing mechanism through loose coupling with bank accounts, said Prof. Huang Yiping in a financial summit in late 2022.

 

In his understanding, the e-RMB primarily serves payment purposes, which is why it’s officially interpreted as a substitute for M0, and not M1 or M2. Embedded in its design are a two-layered issuing mechanism and interest-free payment, thereby reducing the potential negative impact on banks and other financial intermediaries to the largest possible degree, he said.

 

Yet more balancing work is cut out. Privacy protection, for one, must be sound; otherwise, the public might be unwilling to use it. Digital trading should be made part of the national taxation system, but there are examples showing that positive or negative motivations can change people’s behavioral modes. As a result, some believe that the e-CNY might be able to enhance financial efficiency and speed up currency circulation, but others are concerned about the likelihood of the disintermediation of banks, which could lead to an increase in financing costs and slowdown in economic growth. Prof. Huang believed that the design of central bank digital currencies would largely determine whether they might trigger new forms of financial risks or allow central banks to more accurately monitor and tackle new risks.

 

The e-CNY, which is only for individual users at the moment, might be extended to institutions in the future, according to one speculation. As the People’s Bank of China has participated in the mBridge project, cross-border payment could become an important function of the e-CNY in the future. Also, it could not be ruled out that the central bank might pay interests to holders of e-CNY, though it is not doing so right now. Another speculation concerns the possibility of private institutions issuing stablecoins backed by e-CNY, but this is a highly sensitive issue that deserves thorough weighing, said Prof. Huang.

 

It's also speculated that the central bank is partly motivated to aggregate and concentrate payment data, which currently is mainly handled by the two independently run payment systems: Alipay and WeChat Pay. For Prof. Huang, this raises a new question: would the central bank be too concerned about data security instead of giving full scope to the productivity of data analytics?

 

As for cryptocurrencies, Prof. Huang advocated reinforcing and renewing their supervisory modes. For now, the Chinese government bans cryptocurrency trading in China, primarily due to daunting challenges related to money laundering. Over the long term, he proposed following new-fangled digital technologies to gain valuable inspirations for the financial system.