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An official from China’s foreign exchange regulator has emphasized the potential of the “programmable features” within a central bank digital currency (CBDC) to enhance the effectiveness of monetary policy tools, as reported by state media on Friday.
China is part of a growing list of countries that are actively developing their own CBDCs, which are digital tokens issued by central banks. However, it’s important to note that CBDC adoption is still in its nascent stages.
Presently, CBDCs are primarily categorized as M0 currency, akin to physical cash in circulation.
Lu Lei, the Deputy Administrator of the State Administration of Foreign Exchange (SAFE), made remarks during a forum held on Thursday. He suggested that central banks could potentially elevate CBDCs to the status of M2 currency, which encompasses elements like deposits and savings, leveraging the programmable features within these digital assets. Shanghai Securities News carried the report.
Programmable features in a CBDC provide the capability to make changes as needed. For instance, money can be programmed to include an expiration date or possess restrictions for specific uses.
Lu Lei expressed expectations that the People’s Bank of China (PBOC) could explore these programmable features to fine-tune CBDC rates, offering a new tool for managing the broader macroeconomic landscape.
Additionally, he highlighted the potential for cross-border payments facilitated by CBDCs to enhance the safety, convenience, and inclusivity of transactions.
Notably, China’s state-owned banks participated in a trial program last year focused on cross-border transactions, developed by the Bank for International Settlements.
As of the end of June, transactions conducted using China’s CBDC, known as the e-CNY, had reached 1.8 trillion yuan (equivalent to $249.33 billion). However, it’s essential to recognize that the e-CNY in circulation accounted for a mere 0.16% of China’s M0 money supply.
China’s ongoing exploration of CBDC features and their potential applications in various financial contexts underscores the nation’s commitment to innovation and its role in shaping the future of digital currencies.
This endeavor is another sign of China’s determination to remain at the forefront of digital currency development, reflecting its vision for an increasingly digital and interconnected financial landscape.
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