With central banks worldwide racing to create digital currencies, China is also showing progress. As reported by Reuters, a Chinese official from the foreign exchange regulator, Lu Lei, suggests that adding “programmable features” to digital currencies could greatly benefit how they’re used for monetary policy. These features would make digital currencies far more flexible.
Currently, digital currencies are primarily like cash you use daily (M0 currency). Lu Lei, who works for the State Administration of Foreign Exchange (SAFE), thinks that adding programmable features could also work, like savings accounts and other financial tools (M2 currency).
These programmable features are like adjustable settings. For example, you could set money to expire or only be used for specific things. Lu Lei believes that China’s central bank, the People’s Bank of China (PBOC), could use these features to manage interest rates, impacting the entire economy. Lu Lei also thinks that using digital currencies for cross-border transactions could make international payments safer, more convenient, and accessible to more people.
Last year, Chinese state-owned banks participated in a test of cross-border transactions created by the Bank for International Settlements. By the end of June, transactions using China’s digital currency, the e-CNY, reached 1.8 trillion yuan ($249.33 billion). However, the e-CNY’s circulation represented only a small fraction of China’s money supply.
China recently unveiled an industrial park in Shenzhen, next to Hong Kong, dedicated to developing the digital yuan ecosystem. This is the first park of its kind, with nine residents. The local government has also introduced ten plans to promote the growth of the digital yuan ecosystem, including improving payment solutions, using smart contracts, creating secure wallets, and boosting the use of the digital yuan.
