Digital Currency ：10 Questions about China’s DCEP - Part 2
Q6. What are the advantages of DCEP?
Answer: DCEP comes with a host of advantages.
Firstly, it offers a solution to the high cost of issuing, withdrawing, and storing banknotes, as well as the inconvenience in carrying and using cash.
Secondly, the problem with the current central bank’s monetary policy making is that it is impossible to monitor the circulation and use of the currency after it is put into use. With DCEP, the collection of transaction data and circulation information is made much easier, providing an excellent reference for formulating and implementing future monetary policies.
Thirdly, DCEP facilitates the work of anti-money laundering, anti-tax evasion, anti-corruption, and anti-terrorist financing. Based on the information released by the PBOC, although the digital currency adopts controllable anonymity, the PBOC can still use big data and other technologies to identify suspicious transactions and conduct anti-money laundering and anti-terrorist financing supervision.
What’s more, DCEP can foster the development of China’s digital economy. For example, DCEP can generate massive big data that may promote the development of China’s credit industry, resulting in reduced bad debt rate and risks faced by financial institutions.
Last but not least, it improves the quality of financial services in underdeveloped and remote areas. At present, people in those areas are still unable to enjoy handy financial services, such as money transfer, deposit, and loans. However, DCEP can be a game-changer.
Q7. Does PBOC’s introduction of DCEP mean China is moving towards a cashless society?
Answer: Generally speaking, a cashless society can function without any physical currency. The US has started to use credit cards since the 20th century. Fast forward to a decade ago, third-party mobile payment apps emerged in China. They are, in fact, cashless transaction systems. The world has started to move towards a cashless society earlier than we may have thought.
Speaking of money supply, cash is classified into M0, and credit cards and Yuebao belong to M1 and M2 respectively. DCEP is classified as M0. Therefore, China is truly going cashless. However, going cashless takes time – It may take decades or even a century to achieve so.
Q8. How can DCEP benefit the internationalization of Chinese yuan?
Answer: The digitization of Chinese yuan does simplify cross-border payments and transactions and enhance the overseas circulation of the currency. However, it isn’t the sole factor contributing to the internationalization of yuan.
Facilitating offshore circulation is only part of the internationalization plan. The ultimate goal of yuan is to become the world’s leading reserve currency and trade settlement currency. Particularly, yuan-denominated assets have to become a major foreign exchange reserve of central banks, and yuan-settled transactions must account for a certain proportion in international trades. The digitization of yuan is far from achieving any one of these.
促进离岸流通只是人民币国际化计划的一部分。 人民币国际化的最终目的是成为世界领先的储备货币和贸易结算货币。 特别是，以人民币计价的资产必须成为各国央行的主要外汇储备，以人民币结算的交易必须在国际贸易中占有一定比例。人民币元的数字化离实现这些目标还有很长的距离。
Q9. How will DCEP change the payment habits of the Chinese population?
Answer: In fact, DCEP works in the same way as Alipay, WeChat Pay or other third-party payment services. But DCEP can, to a certain extent, smash barriers in the payment industry. For example, while we can’t transfer money from Alipay to WeChat directly and vice versa, DCEP can be deposited to both bank accounts as well as Alipay and WeChat wallets.
Q10. Will DCEP completely replace cash?
Answer: It is too early to say so. Yet, without a shadow of a doubt, DCEP will facilitate the monetary policy making of the Chinese government. The money in your pocket is still yours, but its circulation will be much more efficient across the country and even the globe.
PBOC is developing a “double offline payment” technology that allows transactions to be completed even when both sides of a transaction are offline. Such technology will doubtlessly make DCEP highly usable in most occasions and attract people to adopt it for the ease of use.
By: Mr. Lin Weidong (Lecturer)