MNI BRIEF: CBDCs Can Pay Interest - Chinese Official

A leading Chinese official has raised the possibility of using central bank digital currencies as an interest-bearing store of value, and not just for settlement, which has been the role so far envisaged for the digital yuan by the People’s Bank of China.

Until now the PBOC has classed E-cny as part of M0, a narrow definition of money including cash, but Lu Lei, deputy head of the State Administration of Foreign Exchange told the China(Beijing) Digital Finance Forum that using digital currencies as M2, a broader definition, could improve the authorities’ control of macroeconomic variables.

Confining the e-yuan to M0 means it does not compete with bank deposits. But Lu said that CBDCs could be used with smart contracts tied to interest rates. (See MNI INTERVIEW: A Future Digital Yen May Pay Interest-BOJ Exec)

Central banks so far have faced significant challenges as they work out how to use CBDCs in cross-border transfers, Lu noted, but he pointed to progress in the Multilateral Central Bank Digital Currency Bridge project involving China. SAFE has also made efforts to promote digitalisation, including by establishing a cross-border financial service platform to facilitate trade financing for small and medium-sized enterprises, and setting up a National Foreign Exchange Data Analysis Center to collect reports about risky foreign exchange transactions.