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As central banks across the globe race to develop their central bank digital currencies (CBDCs), China has recently hinted at a groundbreaking development. Chinese foreign exchange regulator, Lu Lei, believes that “programmable features” in CBDCs could be a boon for monetary policy, Reuters reported while citing state media on Friday.
These programmable features could elevate CBDCs from a mere M0 currency or cash in circulation to M2 currency, incorporating deposits and savings. This strategic shift could transform the effectiveness of monetary policy tools, potentially reshaping the global financial landscape.
China’s CBDC Focus
Lu Lei, deputy administrator of the State Administration of Foreign Exchange (SAFE), sees CBDCs as more than just digital cash. In addition, he envisions their role expanding to encompass M2 currency, which includes various financial instruments beyond cash in circulation.
According to reports, the secret to this transformation lies in programmable features. These features enable central banks to customize and fine-tune the functionality of their digital currencies. For instance, money could be programmed with an expiration date or usage restrictions.
Meanwhile, Lu Lei expects the People’s Bank of China (PBOC) to be at the forefront of exploring these programmable features. By adjusting the rates and functionalities of China’s CBDC, the PBOC could wield a powerful tool to manage the macroeconomy. Such innovation aligns with China’s mission to push the boundaries of CBDC adoption.
In addition, Lu Lei highlights the potential of CBDCs in enhancing cross-border payments. Leveraging the programmable features, transactions based on CBDCs could be secure, convenient, and inclusive. He believes that this technology has the potential to revolutionize international financial transactions, making them more efficient and accessible.
Meanwhile, China has already initiated practical steps in cross-border CBDC utilization. Chinese state-owned banks were part of a trial that explored cross-border transactions with the Bank of International Settlements.
Notably, transactions using China’s e-CNY (Digital Yuan) have reached 1.8 trillion yuan or about $249 billion, a significant milestone. Still, e-CNY in circulation represents only a small fraction of China’s M0 money supply.
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Latest CBDC Development Takes Pace In China
China is looking for international collaborations to shape the future of CBDCs. Recently, Hong Kong and the United Arab Emirates (UAE) have joined forces in financial cooperation.
Meanwhile, their collaboration spans various fintech initiatives, including the development of CBDCs. This partnership aims to bolster cross-border trade, payment systems, and virtual asset regulations.
Additionally, China’s commitment to CBDCs extends to Shenzhen, where an industrial park dedicated to the digital yuan ecosystem has been unveiled. This groundbreaking initiative highlights the continuous evolution of the e-CNY.
Notably, the park’s development focuses on diverse areas, including payment solutions, digital yuan promotion, smart contracts, and hard wallet creation.
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