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 forming a hybrid technical framework featuring the co-existence of dual states, namely, steady state and agile state, as well as the integrated development of centralized and distributed architectures.

3.7 Regulatory framework

The research and development of e-CNY is in line with the legal framework of China. Authorized by the Law of the People's Bank of China, the PBOC performs the responsibility of issuing RMB and supervising its circulation. The right to issue RMB is held exclusively by the PBOC. The newly released Law of the People's Bank of China (Revised Draft for Comments) further clarifies that "RMB includes both physical and digital forms."

However, regulatory measures and requirements for e-CNY need to be tailor-made. Regulation of e-CNY should be based on the principle of ensuring its property as a fiat currency, holding up to the bottom line of risk prevention and supporting innovative developments. The regulatory goals are to establish the management system for e-CNY business, make clear regulatory requirements for authorized operators, implement laws and rules on AML/CFT, strengthen the protection of user's personal information, and create a safe, enabling and regulated environment for the use of e-CNY.

4. Implications of CBDC and risk mitigation strategy of the e-CNY system

There is a divergent view about the implications of retail CBDC. Debates mainly focus on whether it could trigger financial disintermediation, weaken monetary policy and exacerbate bank runs. As the research and design schemes of retail CBDC may have different implications for monetary policy and financial stability, the PBOC attaches great importance to reducing risks and preventing potential impact of retail CBDC through top-level designs.

4.1 International opinions on the implications of retail CBDC

4.1.1 Implications for monetary policy

Some believe that retail CBDC is more attractive than deposits and may lead to financial disintermediation, narrow banking, and credit squeeze, while others argue that easy availability of CBDC can enhance the transmission of policy rates to the money and credit markets. If CBDC bears interest at a relatively attractive level, institutional investors might move from low-risk assets such as short-term government securities to CBDC, which will have an impact on the price of these assets. Therefore, in designing CBDC, central banks should take into account the formulation and implementation of monetary policy. However, some also argue that if CBDC bears no interest at all, the risk of CBDC competing with low-risk assets such as commercial bank deposits will be lower, and the potential impact on monetary policy will be mitigated.

4.1.2 Implications for financial stability