A former Vice President of Bank of China has said that replacing the fiat RMB in circulation (M0) with a CBDC is the way to go on monetary policy. Wang Yongli, who is now the director of the Haixia blockchain research institute, shared these sentiments in an article posted on his public WeChat account. This comes as more jurisdictions take a deep dive into CBDC research and development; China currently leads the pack, having launched a digital yuan dubbed ‘DC/EP.’
Yongli’s view on CBDC’s integration with the current monetary ecosystem was first reported by the Global Times. According to the publication, the former Bank of China Vice president advocated for the DC/EP to be substituted for other levels of money in circulation as well,
“The push for digital currency might start with positioning it as a substitute for M0, or cash in circulation, but it shouldn't be confined to such substitution; otherwise, its market competitiveness could be problematic.”
The Value Proposition of CBDC’s
Currently, monetary ecosystems have been pegged to fiat currencies hence the effectiveness of central bankers in most economies. With CBDC’s gaining popularity, the whole monetary ecosystem, as we know, might be overhauled. Yongli was also of the opinion that Central Bank-backed currencies could play a significant role in reshaping monetary mechanisms. He noted that a possible way to go would be the creation of basic CBDC accounts on the PBoC platform designed for its digital currency. In doing so, the bank would be able to actively oversee the digital currency ecosystem with minimal impact of the country’s existing financial network.
Other notable stakeholders who have since backed the idea of a CBDC include Qian Zhijun and Cheng Shi, who are both ICBC International Economists. The two shared a research note with the Global Times indicating that the DC/EP would be a catalyst for China’s ‘dual circulation’ approach in a bid to boost economic development. Ideally, this approach entails reinvigorating China’s economy by linking its domestic market with the global scene.
Zhijun and Shi added that the DC/EP would prevent the leading Asian economy from falling into a liquidity trap as well as create a digital yuan ‘electronic currency dominated’ zone. This should, in turn, prevent foreign policy interference and maintain the independence of the digital yuan as per the two economists.
Nonetheless, a replacement of China’s M0 with a CBDC has been faulted by Digital Renaissance Foundation MD, Cao Yin, who noted that the move should be made in moderation,
“The nation still needs cash reserves, and there are user scenarios in which the use of cash still takes hold, particularly among the older population.”