Yi Gang: Digital RMB mainly meets domestic retail payment needs

On November 9, Yi Gang, Governor of the People’s Bank of China, gave a video speech at the 30th anniversary of the founding of the Finnish Central Bank’s Institute of Emerging Economies, sharing the progress of digital renminbi R&D and issues related to privacy and financial stability.

He said that the use and promotion of the central bank’s digital currency should follow the principles of marketization. In other words, we will issue as much as the common people need to exchange.
And said that the current digital renminbi design and use are mainly to meet the domestic retail payment needs. Cross-border and international use are relatively complex, involving legal issues such as anti-money laundering and customer due diligence, and are also being discussed in depth internationally. In view of the complexity of cross-border use, digital renminbi currently mainly meets domestic retail demand.

The following is the full text of the share:

Hello, ladies and gentlemen!

I sincerely congratulate the 30th anniversary of the founding of the Finnish Central Bank Institute of Emerging Economies, and thank President Rehn for inviting me to attend this commemorative event and discuss the important topic of central bank digital currency (CBDC) with other central bank governors. I would like to briefly introduce the progress of digital renminbi research and development, as well as our work in protecting privacy and maintaining financial stability in the process.

1. The progress of digital RMB research and development

In recent years, especially after the outbreak of the new crown pneumonia epidemic, global electronic payments, especially mobile payments, have developed rapidly. Last year, China’s mobile payment amount increased by nearly 25% year-on-year, and the current penetration rate has reached 86%. It has provided strong support to the fight against the epidemic while facilitating the lives of residents. However, currently, electronic payment tools are mainly provided by the private sector, and there may be risks such as market segmentation and privacy leakage. CBDC enables the central bank to continue to provide the public with credible and safe payment methods in the digital economy era, and maintain the stability of the payment system while improving payment efficiency.

Currently, more than 110 countries have carried out CBDC-related work to varying degrees. For China, the research and development of the digital renminbi is mainly to meet the domestic retail payment needs, improve the development level of inclusive finance, and improve the operating efficiency of the currency and payment system.

The People’s Bank of China began to study legal digital currencies in 2014, and in 2016 built China’s first-generation central bank digital currency prototype, while proposing basic features such as M0 positioning, two-tier operating system, and controllable anonymity. Since 2017, the People’s Bank of China has cooperated with commercial banks and Internet companies to jointly conduct digital RMB research and development. At the end of 2019, the digital renminbi will be piloted, and it currently includes ten cities and the 2022 Beijing Winter Olympics scene. Some cities have also introduced usage scenarios such as digital RMB green travel and low-carbon red envelopes. In July of this year, the People’s Bank of China released a white paper on digital renminbi. As of October 8 this year, there have been more than 3.5 million digital RMB pilot scenarios, with a total of 123 million personal wallets opened and a transaction amount of approximately 56 billion yuan.

In the next step, we will improve the design and use of digital renminbi in a targeted manner based on the pilot situation. The first is to refer to cash and bank account management ideas to establish a management model suitable for digital renminbi; the second is to continue to improve settlement efficiency, privacy protection, anti-counterfeiting and other functions; the third is to promote the interaction between digital renminbi and existing electronic payment tools to achieve security and Convenient and unification; fourth is to improve the construction of the digital renminbi ecosystem and enhance the inclusiveness and availability of digital renminbi.

2. Effectively respond to the impact of CBDC on financial stability and strictly protect privacy

The influence of CBDC on monetary policy and financial stability mainly depends on the design of CBDC. If CBDC is more similar to cash, the impact is relatively limited. However, if it has the attributes of financial assets such as deposits, it may trigger deposit substitution, leading to the shrinkage of financial intermediaries and reducing the efficiency of monetary policy transmission.

In view of this, the People’s Bank of China has properly developed design plans to effectively reduce negative impacts. First of all , we adhere to the M0 positioning of the digital renminbi, do not count interest, and reduce competition with bank deposits. Second , adopt a two-tier operating system, that is, the central bank implements centralized management to ensure the ability to regulate currency issuance and monetary policy; commercial banks and payment institutions act as intermediaries to exchange digital renminbi for the public and provide payment services. Third , institutional frictions such as the upper limit of the wallet balance and the upper limit of the transaction amount have been set to reduce the risk of runs as much as possible. At the same time, during the pilot process, the impact on monetary policy, financial markets and financial stability is also an important test content.

CBDC needs to handle the relationship between privacy protection and crime prevention. At present, a basic consensus of the international community is that CBDC cannot be completely anonymous, otherwise it will aggravate the risks of illegal transactions such as money laundering and terrorist financing and harm the public interest. But some people also question whether the central bank’s digital currency will cause the central bank to control too much information?

We attach great importance to the personal information protection of digital renminbi, and have adopted corresponding institutional arrangements and technical designs. In terms of anonymity, the digital renminbi adopts the principle of “small amount anonymity, large amount traceable according to law”, and follows the “minimum and necessary” principle when collecting personal information, and the amount of information collected is less than that of existing electronic payment tools. At the same time, the storage and use of personal information are strictly controlled. Unless there is a clear legal requirement, the People’s Bank of China shall not provide relevant information to any third party or government agency. Recently, China has also promulgated a number of laws such as the “Data Security Law” and “Personal Information Protection Law” to strengthen data security and privacy protection from the legislative level.

Three, the next step

We always emphasize that the use and promotion of central bank digital currencies should follow the principles of marketization. In other words, we will issue as much as the common people need to exchange. China’s vast territory, large population, and large regional development differences, these factors and residents’ payment habits determine that cash will still exist for a long time in the foreseeable future. As long as there is a demand for cash, the People’s Bank of China will not stop the supply of cash or replace it with administrative orders.

The digital renminbi is designed and used mainly to meet the domestic retail payment needs. Cross-border and international use are relatively complex, involving legal issues such as anti-money laundering and customer due diligence, and are also being discussed in depth internationally. In view of the complexity of cross-border use, digital renminbi currently mainly meets domestic retail demand.
The People’s Bank of China is willing to strengthen cooperation in the field of digital currency with central banks and international institutions. We have co-sponsored the multilateral central bank digital currency bridge (mCBDC bridge) project with the Bank for International Settlements, the Bank of Thailand, the UAE Central Bank and the Hong Kong Monetary Authority to jointly study the role and technical feasibility of central bank digital currencies in cross-border payments. We have also conducted technical exchanges with the European Central Bank on the design of CBDC. In the future, we will continue to discuss CBDC standards and principles with central banks and international organizations in an open and inclusive manner, and properly respond to various risks and challenges in the process of promoting the development of the international monetary system.

Finally, I wish this meeting a complete success! thank you all!

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