BNY Mellon: China CBDC progress implications “huge”, but RoW wary

China is experimenting with a digital renminbi, the first time a major nation has piloted issuing a digital currency. The implications are huge, from enabling micro-targeted economic stimulus to transforming trade with the rising superpower.

In October 2020 as part of a controlled experiment, China’s central bank began creating money without any reported constraints and subsequently handed it out to random households in Shenzhen. Although the amounts received by households were small and the central bank did not have an explicit mandate for the exercise, the potential implications for a new form of targeted monetary policy were clear.

The People’s Bank of China (PBoC) distributed RMB10 million (around $1.6 million) through a lottery — except it was not distributed with helicopters and paper money: it was done digitally. Recipients had wallet apps at the ready on their mobile phones, primed to receive a central bank digital currency (CBDC). Fifteen hundred years after inventing the banknote, China is now attempting to take money truly into the digital age.

Perhaps alarmed or impressed by China’s test programs, central banks around the world have accelerated their own plans, from proofs of concept to pilots of their own. Outside of China, Sweden’s “e-krona” pilot is perhaps the most advanced. However, unlike China’s recent real-life experiment in Shenzhen, the Riksbank is only creating the e-krona in “an isolated test environment” and has explicitly stated that “there is currently no decision on issuing an e-krona.”

China may only be taking baby steps, but the rest of the world is not entirely sold on the concept, and no country has come close to China’s willingness to actually launch the currency itself into the wider economy. In October 2020, the Bank for International Settlements joined the European Central Bank and the central banks of Canada, Japan, Sweden, Switzerland, the UK and the US to issue the first report setting out the “foundational principles and core features” of CBDCs.

It is worth noting that despite the radical advances the PBoC has made in this field, China does not appear once in the 26-page report — not even in the references. Striving for interoperability and common standards is in the world’s interest, yet prospects for deeper cooperation appear limited as de-globalization and decoupling continues apace.

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