C3S Issue Brief VIII: Domestic and International Implications of China’s Digital Currency/Electronic
Updated: Sep 1, 2022
Image Courtesy: Wikimedia Commons
Article Courtesy: Vivekananda International Foundation
Issue Brief: 08/2021
C3S launches its Issue Brief initiative. An issue brief is a summary of the knowledge surrounding an issue or a problem. It summarises the issue giving clear, concise, and complete information describing all facets of a particular issue including a detailed illustration in the form of images, data, and facts. It also includes recommendations for action and predictions on the future course of an issue.
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The concept of Central Bank Digital Currency(CBDC) seems to have gained traction over the past few years and is well past the stage of conception. With around 86% of the world’s central banks engaged in CBDC related work, it is evident that CBDCs are being viewed as an important development in the Fintech domain to counter cryptocurrencies and in order to maintain monetary sovereignty. A combination of factors like shifts in payment modes and the increasing popularity of cryptocurrencies and stable coins has led Central banks to realize that they will have to be in it to win it or else they will lag behind in the race of evolution of money. As of now, China has been able to position itself as the forerunner in this race with rounds of successful trials of its own version of CBDC, the technical term of which is known as DCEP (Digital currency/Electronic payment) and the general term known as Digital Yuan/eCNY/Digital RMB. It is not only testing the domestic prospects but also looking into using it to facilitate cross-border payments. The broader aim can be inferred as a push to internationalize RMB and challenge the dominance of USD in international trade. The fact that none of the major economies have attained what China has, in terms of development and testing of its CBDC is reason enough to be alarmed. Because its implications on the monetary and financial system can be far-reaching, not only for the region but also for the whole world. It can potentially influence the global financial system. Research and development of CBDC should be expedited in other countries as well in order to counter the first-mover advantage that China’s DCEP possesses. Only then global standards around CBDCs would be set in an inclusive manner.
This paper looks into the features of China’s DCEP, its domestic prospects, and its international ambitions and scope. Although little information has been revealed about the DCEP system, multiple documents and statements about the DCEP on different occasions shed light on some of the details of the functionality of DCEP. This paper attempts to study all these sources and expound on the implicit as well as explicit implications.
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About the Author
(Raj Gupta is pursuing his M.A in Chinese from the Centre for Chinese and South-East Asian Studies, JNU, New Delhi. He was nominated by the Ministry of Human Resource Development to pursue Advanced Chinese at Beijing Language and Culture University (BLCU) in 2019-2020 and was awarded JRF in Chinese by the UGC in 2019. The views expressed are personal and does not reflect the views of C3S)