Digital Renminbi Will Enable Precision Control of Money Supply: Ex-Bank of China Head

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Li Lihui (李礼辉), former head of the Bank of China and current head of blockchain research at China’s National Internet Finance Association, has highlighted the ability of the country’s central bank digital currency (CBDC) to improve the implementation of monetary policy.

Speaking at the 2020 2nd Media High-level Blockchain Knowledge Public Benefit Training Session (第二期媒体高层区块链知识公益培训班) on 18 October , Li said that one of the main advantages of the “digital renminbi” currently being tested in China was its ability to make “precision adjustments to the money supply, and strengthen the supply of money circulating in the market.”

Other advantages of the CBDC highlighted by Li include serving as a replacement for cash and reducing expenditures on physical money; strengthening the public nature of the payments system and driving financial inclusion, and shoring up the reliability of financial transactions.

For this reason Li expects the launch of the digital renminbi to make daily life more convenient by further facilitating non-cash transactions, while also accelerating the internationalisation of the Chinese currency, and intensifying financial competition by permitting greater disintermediation.

Li also highlighted several risks in relation to the issuance of statutory digital currency by the Chinese central bank, including:

  1. Weakening the initial credit capacity and profitability of commercial banks;
  2. Serving as a ready trigger for systemic financial risk;
  3. The central bank’s balance sheet can rapidly expand as a result of digital currency, and large volumes of deposits will be made wth the central bank. While the central bank possesses the right to control, it must also bear more direct responsibility.

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