ABSTRACT
eCNY is China’s retail CBDC. Its issuance is based on 100% reserves under the two-tier operating model, loosely coupled with bank accounts and centrally managed. The main purpose of eCNY is payment modernization. First, improve the efficiency of the domestic payment system. Second, promote fair competition in the financial industry. Third, enhance the public faith in RMB. Fourth, regulate the behaviour of financial institutions and Big Tech companies to protect public interest. eCNY issuance and redemption will not affect the total amount of central bank money, will not cause money oversupply, and is almost neutral to inflation. eCNY will not lead to quantitative easing. It will improve public preference for cash, albeit in a digital form, and lower monetary multiplier, which has a contractionary effect but can be easily offset by monetary policy. eCNY would not significantly impact banks’ functions and market position. PBoC will design the technological and application standards of eCNY and let the payment paths, payment conditions, and business applications be decided by market participants. eCNY will promote RMB cross-border usage. However, the introduction of eCNY is only necessary for RMB internationalization, but far from a sufficient one. Capital account convertibility remains key for RMB internalization.
