PBOC and ECB exchange ideas about digital currencies

The People’s Bank of China (PBOC) and the European Central Bank (ECB) are having “regular technical exchanges” on aspects like design, applications and use of central bank digital currencies (CBDCs). Yi Gang, Governor of the PBOC, said PBOC-ECB communications signify progress toward 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 address to the 30th Anniversary Conference of the Bank of Finland Institute for Emerging Economics. “We would like to strengthen cooperation with other central banks and international organizations on CBDCs.” PBOC-ECB communications signal that the monetary authorities of China and the European Union may deepen their cooperation to set up systems for their respective CBDCs.

The larger 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 the PBOC is also building a management model for the digital RMB, or e-CNY, with reference to the management of cash and bank accounts. It will increase interoperability with the existing electronic payment tools, and improve the e-CNY ecosystem. An Executive of the ECB said that central banks have to prepare for a digital future and the digitalization trend requires CBDCs as a complement to cash. The role of the e-CNY is to replace some cash in circulation, which bears no interest, to reduce competition with commercial banks for deposits. In addition, designers of the e-CNY have introduced the upper limit for digital money transfer through digital wallets to minimize the risk of bank runs, Yi said.

Cross-border use of CBDC is much more complicated. But the PBOC never stops exploring this area, and it has jointly launched the multilateral CBDC bridge project – mBridge – with its counterparts or peers such as the Bank for International Settlements (BIS), the Bank of Thailand and the Central Bank of the United Arab Emirates. Under the mBridge project, a case from Bank of China (BOC) indicated that the efficiency of cross-border trade settlements can be enhanced when transactions are between mBridge and two interconnected cross-border digital trade platforms. The latter are both blockchain-based trade finance platforms, according the PBOC’s Digital Currency Institute.

Mu Changchun, Director General of the PBOC’s Digital Currency Institute, said that as of October 22, 140 million individual wallets and 10 million corporate wallets have been created, with volume totaling 150 million transactions with a value of about CNY62 billion. Yi also said mobile payment services, which grew 25% last year in China, are mainly provided by the private sector, which raises risks of risks of market fragmentation and privacy infringement.” In comparison, CBDCs allow central banks to continue to provide a credible and secure means of payment in the digital era, which can improve efficiency and integrity of the payment system, Yi said, as reported by the China Daily.