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PBOC and ECB exchange views on digital currency

Visitors view information on a booth promoting e-CNY at an exhibition in Beijing. [Photo by Chen Xiaogen/For China Daily]

Central bank director says global monetary ties can help defuse risks

The People’s Bank of China, the Central Bank and the European Central Bank have “regular technical exchanges” on aspects such as the design, applications and use of central bank digital currencies or CBDCs.

PBOC Governor Yi Gang said PBOC-ECB communications signify progress in exploring the use of CBDCs in cross-border payments. They are part of efforts to promote the development of the international monetary system.

Yi made the remarks in his speech at the 30th anniversary conference of the Bank of Finland’s Institute for the Emerging Economy. “We wish to strengthen cooperation with other central banks and international organizations on CBDCs.”

The PBOC posted a copy of its speech on its website on Wednesday. Analysts immediately reviewed the document and said the PBOC-ECB communications signaled that monetary authorities in China and the European Union may deepen their cooperation to set up systems for their respective CBDCs.

The broader goal is to use CBDCs to defuse potential risks that may arise from various privately developed cryptocurrencies such as Bitcoin, analysts said.

In his speech, Yi said that the PBOC is also building a business model for digital RMB, or e-CNY, with reference to cash management and bank accounts. It will increase interoperability with existing electronic payment tools and improve the e-CNY ecosystem.

An ECB executive said on Friday that central banks must prepare for a digital future and that the digitization trend requires CBDCs to supplement cash, foreign media reported.

It is similar to the opinion of the Chinese monetary authorities that the role of the e-CNY is to replace part of the cash in circulation, which bears no interest, in order to reduce competition with commercial banks for deposits.

In addition, the designers of the e-CNY introduced the upper limit for transferring digital money through digital wallets to minimize the risk of bank run, Yi said. During the tests, the PBOC also aims to test the impact of the e-CNY on monetary policy and financial stability.

The cross-border use of CBDC is much more complicated. But the PBOC continues to explore this area, and it has jointly launched the CBDC “mBridge” multilateral bridge project with its counterparts or peers such as the Bank for International Settlements, the Bank of Thailand and the Central Bank of the United Arab Emirates. .

As part of the mBridge project, a Bank of China case indicated that the efficiency of cross-border trade settlements can be improved when transactions are made between mBridge and two interconnected cross-border digital trade instrument platforms. Both are blockchain-based trade finance platforms, according to a brochure from the PBOC’s Digital Currency Institute.

He indicated that the PBOC trade finance platform is operated by a subsidiary of the PBOC Institute of Digital Currency, which is a financial infrastructure that provides public trade finance services.

The platform has facilitated a number of businesses, including multi-tiered debt finance in the supply chain industry, cross-border finance, oversight of international trade remittances, and tax reporting on international trade. outgoing payments, the brochure says.

“Cross-border use of CBDCs involves more complex issues, such as anti-money laundering measures and customer due diligence. Therefore, e-CNY is focusing on this. stage on domestic retail payments, ”Yi said.

Mu Changchun, managing director of the Digital Currency Institute of the PBOC, said that as of October 22, 140 million individual wallets and 10 million corporate wallets have been created, with a total volume of 150 million transactions a worth about 62 billion yuan ($ 9.7 billion).

Yi also said that mobile payment services, which grew 25% last year in China, are mostly provided by the private sector. “This creates risks of market fragmentation and invasion of privacy.”

In comparison, CBDCs allow central banks to continue to provide a credible and secure means of payment in the digital age, which can improve the efficiency and integrity of the payment system, Yi said.

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