Digital Currency Electronic Payment or DCEP has become the latest buzzword in the blockchain community, as China announced a series of blockchain initiatives amid capitalizing on this emerging technology. The country’s push on rolling out a digital version of yuan could bring a significant impact to the global blockchain landscape, potentially accelerate the adoption of digital currency globally. From a macro perspective, what potential benefits digitalizing a currency could bring, and its impact on monetary policy, financial stability, and integrity?

Racing to Digital

While lawmakers in the US were still questioning the potential security and legal issues of Facebook’s Libra, China seems to be one step ahead when it comes to digitalizing its currency.

Just this week, China revealed more details about its DCEP project. Initially, the PBOC will distribute the digital currency to all commercial banks and replace the Reserve Money (M0) system, reducing interbank transfer barriers.

After the system stabilized, the central bank will additionally commercialize the digital currency by allowing major fintech companies to use it in their mobile payment systems. Officials claim that the DCEP project is an effort of 6 years of hard work and research, and it will share the same nature and legal status as the traditional fiat currency.

The swift move from China seems to make the country a global leader when it comes to the blockchain application, and it could be the biggest monetary transformation in a decade. However, China’s ambitiousness could also lead to a new global “blockchain race”.

The United States has been largely lukewarm, if not negative, over blockchain and bitcoin. Some lawmakers on Capitol Hill have expressed their opposition over the issuance of digital currencies, and the SEC has been unconvinced on some crypto-related financial products, at the same time, President Donald Trump also said he was not a fan of cryptocurrency.

However, China’s latest blockchain push could shift the tide in the US and the country could take a more proactive approach in this field, as two superpowers have been competing on the technology front. A showdown in blockchain between the US and China could potentially possible as we approach the year 2020.

Digital Currency: The Global Landscape

China may be leading the global digital currency game for now, but other countries could be catching up soon. New research from the International Monetary Fund shows that at least 15 jurisdictions, including China, have studied the possibility of digitalizing their currencies.

 Jurisdictions Where Retail CBDCs Are Being Actively Explored

Source: IMF; Public information

IMF also highlights that emerging market economies have shown the most interest in central bank digital currency because they believe it will able to forester financial inclusion by reaching out to the unbanked segments of the population. In the case of advanced economies, countering operational risk and monopoly distortion, reducing costs associated with managing cash were among major reasons for them to explore central bank digital currency or CBDC.

The Pros

Emerging market economies and advanced economies may have a different rationale and motive behind their CBDC researches, but in general, CBDC may able to improve the efficiency of the payment system, reduce transfer costs, and could encourage financial inclusion.

In terms of payments, CBDC could address some of the privacy concerns by conducting transactions anonymously under a centralized environment, which could also curb the development of private forms of anonymous payment, reducing some of the AML and CFT risks.

Form the monetary policy transmission perspective, the IMF believes that CBDC will not interrupt the transmission substantially, and if CBDC will able to stimulate greater financial inclusion, the transmission could be more effective.

Peter Bofinger, Monetary Policy and International Economics Professor at the University of Wurzburg believes that the digitalization of money has the potential to change traditional structures of the financial system and could redefine the roles of banks and central banks, but digitalization won’t wear away the control of central banks over the financial system.

The Cons

CBDC could potentially raise some new security concerns despite it has features that encourage financial inclusion. The digital nature that allows easier transaction will also increase operational risks from disruptions and cyberattacks.

IMF also notes that the demand for CBDC will not necessarily be very high initially, and it will depend on the attractiveness of alternative forms of money. If a continuation of low demand in CBDC occurs, it could increase the system running cost for central banks and other institutes. Additionally, the adoption of CBDC could curb the development of private forms of anonymous payment, this move could increase risks to financial integrity.


It’s too early to make conclusions on the benefits of CBDC, as this is still largely in the beginning stage, and central banks and commercial banks were still in the process to evaluate what kind of impact a digital currency could bring to the markets. However, many of the experts agree that the changes that CBDC could bring are profound and widespread.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involves significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.

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