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Digital RMB pilot enters the second half

2021-11-17 10:22:38

“According to a survey by the Bank for International Settlements, 60% of central banks in 65 countries or economies have been conducting digital currency experiments or proofs of concept.” Li Lihui, Head of the Blockchain Research Working Group at the National Internet Finance Association of China and Former President of Bank of China said at the 2021 Global Asset Management Forum pointed out that China should seize the opportunity of digital currency innovation and development and develop digital renminbi into the best central bank digital currency worldwide. This will not only facilitate inclusive finance, but also strengthen the balance and coordination of the global monetary and financial system in the era of digital economy, safeguard national monetary sovereignty, protect national financial security, and further enhance national strength.

Li Lihui said that China’s digital fiat currency or central bank digital currency is called “digital renminbi” with the following five characteristics. First, it adopts a centralized management model and a two-tier operation system to ensure the reliability of monetary policy transmission mechanism and the efficiency of monetary policies. Second, it is an account-based and value-based system. Third, it is loosely coupled with bank accounts plus digital wallet, and thus payments through digital renminbi are settled upon payment. It also adopts “managed anonymity” in line with the principle of “anonymity for small value and traceability for high value”. Fourth, it adopts a hybrid technical framework that combines centralized architecture with distributed architecture, a mix of technologies such as trusted computing and specialized integrated encryption in hardware and software, and a multi-layer security system. Fifth, it achieves programmability by deploying smart contracts. This feature enables automatic payments according to predefined conditions and facilitates business model innovation.

Cheng Shi, Chief Economist and Managing Director of ICBC International, said that digital renminbi pilots have covered more than 322 scenarios in many fields as of the end of June this year, such as salary payments of enterprises featuring carbon peaking and neutrality, two-way payment of property rights transactions, and low-carbon transportation. This shows the important role of digital currency in supporting the development of digital economy and stimulates its new vitality.

Cheng Shi said that digital renminbi is expected to enhance the inclusiveness of wealth management and cover the transactions among “long-tail people” as it can reach the remote areas without internet access. He also pointed out that the promotion and wide use of digital currency enables regulatory authorities to track micro-dynamic behaviors in the real economy and effectively prevent risks through big data analysis. In addition, digital renminbi, mainly accepted by commercial banks, will accelerate the digital transformation of traditional financial institutions. Digital renminbi also breaks the traffic monopoly of Internet enterprises with its controllability, and promotes the expansion of traditional financial institutions into more business sectors with good risk control capabilities.

“As the digital renminbi pilot enters the second half, the government needs to pay more attention to the micro-details and further diversify the payment scenarios. China can promote the digital currency pilots based on the features of different cities and scenarios, and strengthen the coordination between different regions.” Cheng Shi said. For example, the government in Hainan can build upon the advantages brought by Hainan Free Trade Port to expand the use of digital renminbi in duty-free shopping and cross-border import e-commerce, and improve payment efficiency to increase trade volume in free trade port and facilitate capital flow. Most of digital renminbi pilots are conducted at regional level. As a supplement to cash, digital renminbi should reflect the universal applicability and interoperability of cash at a certain stage of the pilot. Therefore, it is important to explore the interoperability between digital renminbi wallets in different regions.

Cheng Shi believed that in addition to the application in daily high-frequency consumption scenarios, digital renminbi should be upgradable, that is programmability, which means that under the premise of compliance with laws and regulations, digital renminbi can be used for payment in specific scenarios, during specific time, and according to agreed conditions. This opens up greater space for the use of digital renminbi, and it is also where digital economy, especially digital currency will go globally.

“Central bank digital currency has favorable conditions to become a main instrument in improving the global payment environment. China is taking a leading role in central bank digital currency pilots. Facing the globalization of central bank digital currency, China should secure its dominant position, and step up the research and development of the wholesale function of digital renminbi to meet the needs of payment and clearing between financial institutions.” Li Lihui said. He also pointed out that barrier-free, high-traffic and cross-border digital renminbi payments between relevant countries and economies not only require the coordination of technical standards and technical platforms, but also involve the mechanisms and policies such as monetary sovereignty, exchange arrangements and regulatory cooperation. The People’s Bank of China has made it clear that it will explore cross-border payment pilots under the premise of mutual respect for monetary sovereignty and compliance with laws and regulations, and will work with relevant monetary authorities to set up exchange arrangements and regulatory cooperation mechanisms on digital fiat currency in line with the principle of “no disruption”, “compliance” and “interoperability”.

(Source: CCPIT/ chinatradenews.com.cn)