An official from China's foreign exchange regulatory body has highlighted the potential benefits of "programmable features" within a central bank digital currency (CBDC) to enhance the effectiveness of monetary policy tools. China is actively developing its own CBDC. However, the adoption remains in its early stages.

Unlocking Programmable Features' Limitless Potential

Lu Lei, the Deputy Administrator of the State Administration of Foreign Exchange, spoke at a forum and emphasized the programmable capabilities of CBDCs. He stated that these programmable features could potentially expand the role of CBDCs beyond M0 currency, traditionally associated with cash in circulation.

This expansion would encompass M2 currency, which includes various forms of deposits and savings. These programmable features are settings that can be adjusted, allowing money to have expiration dates or restrictions for specific uses.

Lei suggested that the People's Bank of China might explore these programmable features to fine-tune interest rates within the CBDC, which could further contribute to the management of the macroeconomy.

Moreover, Lei highlighted the potential of CBDCs for cross-border payments, as they can make transactions safer, more convenient, and inclusive. He noted that last year, Chinese state-owned banks participated in a trial, in collaboration with the Bank of International Settlements, focused on cross-border transactions.

As of the end of June, transactions using China's CBDC, known as the e-CNY, had reached 1.8 trillion yuan (approximately S$339 billion). However, it's important to note that the e-CNY in circulation represented only 0.16 percent of China's M0 money supply, indicating that there is still ample room for growth and adoption in the CBDC landscape.

The exploration of programmable features in CBDCs and the growing transaction volumes using the e-CNY underscore China's commitment to innovation and modernization in its financial sector. As CBDCs continue to evolve, they hold the potential to reshape monetary policy tools and cross-border transactions, enhancing the efficiency and inclusivity of financial systems.

DBS Launches Innovative e-CNY Payment Solution for Chinese Merchants

Finance Magnates reported earlier that DBS introduced a solution enabling Chinese merchants to accept payments in e-CNY. The initiative marks a significant development in facilitating e-CNY transactions and enhancing financial services. DBS already executed the first transaction for a Shenzhen-based catering company using this novel platform.

The e-CNY merchant collection solution streamlines payment settlement processes by automatically depositing payments into merchants' e-CNY bank accounts. This service is designed to function smoothly even in areas with limited internet connectivity. It offers efficient financial reporting reconciliation. DBS's digital platform, DBS IDEAL, provides access to these reports.

Ginger Cheng, the CEO of DBS Bank in China, underlines the importance of integrating CBDC collection and settlement methods into existing payment systems to support businesses in China. The e-CNY has gained steady popularity. With over 13 billion e-CNY currently in circulation across 26 cities and 17 provinces in China, it signals the growing adoption of CBDCs.

CBDCs, unlike cryptocurrencies, are centrally regulated digital representations of fiat currencies backed by a country's central bank reserves. DBS's involvement in testing asset tokenization and DeFi, along with the Monetary Authority of Singapore's initiatives in promoting safe and efficient digital asset networks, reflects a broader trend in the financial sector toward digital transformation and innovation.