China FX regulator says CBDC features could improve monetary policy

Currently, CBDCs are mostly being positioned as M0 currency, or cash in circulation.

A Chinese foreign exchange regulator official said ”programmable features” of a central bank digital currency (CBDC) could help enhance the effectiveness of monetary policy tools, state media reported on Friday.

China is among a host of countries developing their own CBDCs – digital tokens issued by central banks – although adoption is still in its early stages.

Currently, CBDCs are mostly being positioned as M0 currency, or cash in circulation.

Lu Lei, deputy administrator of the State Administration of Foreign Exchange (SAFE) told a forum on Thursday that central banks could make CBDCs M2 currency, which includes some deposits and savings, based on its programmable features, Shanghai Securities News reported.

Programmable features in a CBDC are settings that can be changed. For example, money can be programmed to have an expiration date or be restricted for certain uses.

Lu said he expected the People’s Bank of China (PBOC) could explore the features to adjust rates of CBDC, which could also be used manage the macro economy.

Lu also said cross-border payments based on CBDCs can make transactions safe, convenient and inclusive.

Chinese state-owned banks participated last year in a trial focused on cross-border transactions developed by the Bank of International Settlements.

Transactions using China’s CBDC, the e-CNY, hit 1.8 trillion yuan ($249.33 billion) at end-June. Still, e-CNY in circulation accounted for only 0.16% of China’s M0 money supply.