Top PBOC Researcher Says Central Bank Digital Currency Can Optimise Payments and Monetary Policy


The Chinese central bank’s top digital currency researcher has hailed the potential for virtual currencies to improve both payment systems and monetary policy.

In an article published by Yao Jian (姚前), head of the People’s Bank of China’s (PBOC) Digital Currency Research Institute, says that a Central Bank Digital Currency (CBDC) will play a “vital driving role in the optimisation of the payments function of existing statutory currencies.”

“Central bank digital currency can reduce dependence upon the payments services provided by private parties and reduce the regulatory burden and pressure for central banks, as well as strengthen the authoritativeness of existing statutory currencies.

“The issuance of central bank digital currencies can also resolve the impasses faced by modern monetary policy, including low efficiency of policy transmission, the difficulty of counter-cyclical adjustments, the flow of money from the real economy to the virtual economy, as well as inadequacies in policy prediction and regulation.”

Yao Jian highlights prevailing weaknesses with traditional forms of money, including weak traceability, homogeneity and “real momentness,” as serving as impediments to effective monetary policy.

“Weak traceability makes it very difficult for central banks to monitor and control flows of money, thus leading to a time lag in the policy reactions of central banks.

“Homogeneity means that the sole function of paper money is as a measure of value, and for this reason traditional monetary policy is only able to use adjustments to total quantity to impact the supply and cost of money for the private sector…this leads to difficulty in targeting the money supply.

“Real momentness means that transactions and payments are real time in nature with traditional money, and for this reason central banks are unable to ascertain money flows as well as whether monetary policy goals have been achieved.”

Yao believe that central bank digital currency can improve payments systems by removing dependence upon actors in the private sector.

“In order to ensure the regular function of payments systems, the central bank allows the private sector to issue money based upon bank deposits or electronic money.

“A multi-tier payments system encompassing bank payments and third party payments enriches payment methods as well as expands payments networks, but because payments systems become highly complex, this also markedly increases the regulatory burden and pressure for central banks, while guarantees provided by the central bank increase the moral hazard of the private sector.

“The introduction of a central bank digital currency can optimise payments systems and raise the effectiveness of monetary policy…following its introduction the central bank does not need to retain the traditional model of the private sector providing payments services, and the central bank providing value guarantees.

‘With a central bank digital currency payments do not need to depend upon third party services, thus expanding the payments network for existing statutory currency.

“A central bank digital currency overcomes the defects of paper money, and via the collection of administrative fees can achieve the negative interest rate targets of irregular monetary policy.

“Its traceability can combat money laundering and tax avoidance, while issuance, transaction and storage costs are all greatly reduced.”

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