China’s Central Bank Digital Currency (CBDC) is stepping forward in line with its fiat currency laws to dominate the pre-existing cash in circulation (MO) via launching the digital Renminbi or digitize M0.
Meaning, China’s CBDC would be “equivalent to banknotes and coins.” The country is in full gear to introduce CBDC while following laws in coordination with the current MO (the most liquid form of money i.e., cash in liquid which includes central banknotes and coins).
The digital Renminbi or digital Yuan is the digital cryptocurrency that is issued and operated by the Chinese Central Bank, i.e., People’s Bank of China (PBOC).
At present, the digital Yuan is being piloted in Beijing along with the four adjoining regions namely Tianjin, Hebei, the Yangtze River Delta, Guangdong including Hongkong and Macau with a plan to launch in the 2022 Winter Olympic Games.
Reportedly, the most hyped and forthcoming China’s legal CBDC (Central Bank Digital Currency) or digital Yuan would be accepted everywhere in the country if conditions are met.
Further, it is mentioned that all the public and private debts can be paid via the digital Renminbi within the territory of Chinese province and nobody, would be able to reject it as it is going to be a digitized M0.
The exclusive report by a Chinese financial news outlet while citing the analysis of Fan Yifei, PBoC’s deputy governor, on the policy implications of Digital RMB (MO) positioning mentioned-
“Based on the broad account system, it supports the loose coupling function of bank accounts, which is equivalent to banknotes and coins, has value characteristics and legal compensation, and supports controllable anonymity. We believe that digital renminbi is mainly positioned in cash in circulation (M0).”
The information reads that the value of a fiat currency depends on the value scale, value storage, and medium of exchange and which can constitute three features like it must be measurable, confirmable, and transferable. All these factors together make a currency a legal tender. However, with time transition, the evolution of money is still happening to improve the efficiency of currency circulation and improve consumer welfare.
Towards the development of the economy and to make it a digital economy it is vital to appreciate new technological advancements and provide a new and universal base currency that can strengthen the economy digitally. Especially after seeing the opportunities laid out by Bitcoin and global stablecoins. The report alludes.
However, it is also mentioned that “Replacing M1 and M2 with digital renminbi will neither help improve payment efficiency, but will also cause a huge waste of existing systems and resources.”
According to Yifei, the government must incorporate and manage new technologies with in the system to fight over concerns like these without eroding the national currency sovereignty to make a stable system which can cater everybody’s needs “to digitize M0 and supplement the existing electronic payment system” towards a better society.
“The use of decentralized technology to process payment transactions such as encrypted assets will erode national currency sovereignty.”… So, “adhering to the centralized management of digital RMB issuance is of great significance” to maintain the status of legal tender.