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 Some point out that CBDC, as the safest asset, could exacerbate bank runs in times of crisis. Residents and companies can easily convert bank deposits into CBDC, causing financial disintermediation and amplifying financial volatility. In particular, when systemic risks emerge, CBDC will serve as a channel for the public to quickly switch to safe assets. However, there are voices that CBDC will not have significant impact because quick interbank transfers have already been made possible under the current e-payment systems. In times of bank crisis or even economic crisis, e.g. currency crisis or sovereign debt crisis, funds will be withdrawn from all domestic assets, including CBDC, instead of merely shifting from bank deposits to CBDC.

4.2 Design of the e-CNY system to mitigate negative impact

Since the start of research on e-CNY, the PBOC has been paying close attention to the implications of retail CBDC for monetary system, monetary policy, financial markets, and financial stability, among others. The PBOC leverages on operational, technological and policy designs to minimize the impact of e-CNY system on existing monetary system, financial system, and the real economy.

To reduce competition with bank deposits, e-CNY is a substitute for M0 and pays no interest. It circulates in the same way as the physical RMB in a two-tier system under which commercial banks exchange e-CNY for the public. Meanwhile, the PBOC has put in place system frictions as appropriate to prevent the rapid spread of bank runs. To promote the use of e-CNY in retail payment scenarios, ease the crowding-out of bank deposits, and prevent arbitrage as well as procyclical effects under stressful conditions, the PBOC has come up with a tiered design of e-CNY wallet with different caps on transaction and balance for different types of e-CNY wallets. Additionally, the PBOC has set up a framework of big data analysis, risk monitoring and early warning for e-CNY to enhance the foresightedness, accuracy and effectiveness of e-CNY management.

Digital fiat currency is a new thing. Its impact on the economy and the financial sector can be assessed through pilot tests and practices. The PBOC is carrying out e-CNY pilot programs with the focus on the implications of e-CNY for monetary policy, financial markets and financial stability in the pilot regions. Based on the findings of the pilot programs, the PBOC will iterate and improve the e-CNY design accordingly.

5. Progress in work

The PBOC has made sustained efforts to explore, update and improve the relevant theories and technologies on digital fiat currency, which has brought into shape the current e-CNY model and business framework. Going forward, the PBOC will build upon test results and further improve technological, business and policy frameworks.

5.1 Previous work

From 2014 to 2016, the PBOC established the digital fiat currency research group, and kicked off research in this field. The research group conducted in-depth studies in