A senior official from China’s foreign exchange regulator has emphasized the potential of “programmable features” in central bank digital currencies (CBDCs) to improve the effectiveness of monetary policy tools, according to state media reports.
CBDC Development in China
China is among several nations developing its own CBDCs, which are digital tokens issued by central banks. While CBDC adoption is still in its early stages, these digital currencies are often positioned as M0 currency, equivalent to cash in circulation.
Enhancing CBDC Functionality
Lu Lei, Deputy Administrator of the State Administration of Foreign Exchange (SAFE), explained that by leveraging the programmable features of CBDCs, central banks could expand their role beyond M0 currency to include M2 currency, which encompasses deposits and savings. These programmable features enable settings that can be modified, such as assigning an expiration date to money or imposing restrictions on its use.
Lu suggested that the People’s Bank of China (PBOC) could explore these features to adjust interest rates for CBDCs, providing a tool to manage the macroeconomy.
Cross-Border Payments with CBDCs
In addition to their potential impact on monetary policy, Lu highlighted the benefits of cross-border payments facilitated by CBDCs, describing them as secure, convenient, and inclusive. Chinese state-owned banks participated in a cross-border transaction trial conducted by the Bank of International Settlements in the previous year.
As of June, transactions using China’s CBDC, the e-CNY, had reached 1.8 trillion yuan ($249.33 billion). However, the e-CNY in circulation represented just 0.16% of China’s M0 money supply.
The development of programmable features in CBDCs and their potential expansion into M2 currency could usher in new capabilities for central banks and monetary policy management.