How Will DC/EP Impact China’s Financial Landscape?

The Ministry of Commerce has recently announced Chinas own digital currency， the digital RMB， will be piloted in Beijing， Tianjin， the Yangtze River Delta， and some areas in Chinas western region.

The Peoples Bank of China （PBC）， the central bank of China， is to formulate policies to govern its circulation. According to the central bank， a centralized management model and two-tier operation system will be used to manage the digital currency. The PBC will be the central bank and the upper-tier operator facilitating the exchange of the digital currency at banks and other fi nancial institutions， which form the lower tier.

Under this operating system， to be known as the digital currency and electronic payment（DC/EP） system， commercial banks and other financial institutions must deposit with the PBC the full amounts they plan to exchange as digital currency. The PBCs digital currency will be regarded as legal tender with technological upgrade， without altering the attributes of bank reserves and cash.

In 2008， virtual currency was born based on blockchain technology and has since been favored by users around the world. However， its fl aws such as unstable value and lack of credit support create opportunities for fi nancial crime such as money laundering， and complicate investigation and standardization by financial regulators.

Digital RMB， however， is endorsed by Chinas sovereign credit， and is thus much more reliable， with every sum being traceable and trackable.

As for whether digital currency will squeeze mobile payments apps like WeChat Pay and Alipay， the authorities answer is “impossible.”In essence， digitalized RMB is money， or currency， and mobile payment is a way of receiving or paying money. As far as mobile payment is concerned， whether consumers use digitalized RMB or cash， it does not matter.

How will digitalized RMB impact Chinas fi nancial landscape？ And how well will consumers， businesses and fi nancial institutions accept this digital currency？ People from all walks of life expressed their views on the trials of digitalized RMB and made some predictions for its future development in China， and even in the world at large.

Boosting economic cooperation

Pan Helin （The Economic Daily）： The trial of the digital currency is a big step toward the broader use of digitalized RMB. On one hand， it will greatly promote the development of Chinas digital economy. Digital currency will make payment more convenient and also cut the cost of currency circulation and management. The currency can swiftly adapt to transactions in the digital era and is also expected to nurture a lot of new businesses.

Meanwhile， the widespread adoption of digitalized RMB will also give new impetus to the internationalization of the RMB， promoting payments in RMB throughout the rest of the world. Also， its important to strengthen cooperation on regulation and monitoring with other countries， so as to promote information sharing in this regard and better crack down on transnational crimes related to digital currency.

Liu Yushu （finance.sina.com.cn）： Digital currency will help to promote harmony between fi nance and the real economy， as well as the integration of Chinas internal system with the external financial system. Compared with conventional currency， in the era of big data and AI technology， the use of digital currency will surely be further expanded. Currently， China is playing a leading role in the global development of digital currency， and the PBCs DC/EP framework system has already been recognized by many countries， propelled by the smooth progress of its pilot projects.

As the digital economy becomes increasingly integrated around the world， the system and technology advantages of DC/EP in international payments， settlements and pricing will give weight to the internationalization of the RMB. The convenience and credibility of digitalized RMB will also help to boost diversifi ed and fl exible fi nancial cooperation.

Benefiting ordinary people

Liu Xiaoxin （www.rmlt.com.cn）： Digitalized RMB will make daily payments by ordinary people more convenient. Compared with cash， digital currency is unsusceptible to theft， damage and loss. Besides， it will help to avoid losses caused by counterfeit money. Digitalized RMB supports offl ine payments， and does not depend on the Internet for operation. Even in extreme conditions like earthquakes and typhoons， payments can be completed smoothly. Moreover， digitalized RMB doesnt need to be connected to bank accounts， which allows anonymous use in the process of payment. In the future， digitalized RMB will also be applied in fi nancial products and provide fresh ways for people to manage their wealth.

The arrival of digital currency will lead to a reduction of paper money and coins， thus cutting the management cost in the process of printing， issuing， transporting， storing and security. Commercial banks fi nd it costly to transport and store cash， but the situation will be improved when digital currency is widely adopted.

Although digitalized RMB can be used anonymously， the PBC can ascertain the amount and details of every transaction， and track the fl ow of the currency. This feature will make it much easier to combat crimes such as smuggling， fraud and drug trafficking， and will also help to crack down on corruption among offi cials while reducing losses from tax evasion.

Digital currency will help to prevent fi nancial risk. The amount of money possessed by any individual or institution， or its circulation is under the supervision of the PBCs monitoring system.

The use of digitalized RMB can lower the threshold for financing among small-tomedium enterprises， which in turn will help the development of the real economy. As digital currency can be tracked， banks and other fi nancial institutions can swiftly obtain the real performance of a potential borrower and also the borrowers transaction records at relatively low cost. With its transparent credit rating and debt payment capacity， financial institutions can make a better decision on whether to offer loans or not.

Zhao Guangbin （www.yicai.com）： From the perspective of ordinary consumers， digitalized RMB may well play a dominant role in payments and investments in the near future. Although the vast majority of consumers in China have already become used to cashless payments thanks to the rapid growth of mobile payments， the payment is still based on the cash amount in their bank accounts， but the arrival of digitalized RMB may provide more choices.

In the future， when receiving money or making payments， they can choose a new cashless form： digitalized RMB. As digitalized RMB becomes increasingly accepted， investments in digitalized RMB will also be possible. It takes some time for digital currency to be widely used. Its convenience and various merits need to be promoted to the public so that it can be accepted more quickly. Commercial banks need to offer some perks to those who choose to use digitalized RMB.

Its also necessary that relevant authorities such as the central bank， the Ministry of Finance and even some state-owned enterprises provide favorable policies. For example， to make it more convenient for transnational transactions involving digitalized RMB， capital in this form should be allowed to fl ow freely as long as the amount is not too big， either for business deals or investment projects. Gas stations， public utilities， pension accounts， and even salary payment by businesses and organizations may all turn to digitalized RMB. This will not only prevent embezzlement but also reduce costs.

Although it will take some time for the ecosystem of digitalized RMB to take shape across the board， in the long run， the progress of science and technology and the penetration of the digital economy into peoples lives will persuade the vast majority of consumers to adopt digitalized RMB， or at least as the major means of payments. Whether the digital currency will be as lucky as mobile payment， which has managed to get nationwide acceptance within a few short years， its hard to say. The key lies in whether consumers and the market， including businesses and fi nancial institutions， are inclined to use it.

Reports from the Bank for International Settlements show that apart from being a supplement to online payments， digitalized RMB may also add some diversity to mobile payments， which are now dominated by WeChat Pay and Alipay. In this sense， the impact of digitalized RMB on mobile payments may bring some changes in the digital payment area.