Taking stock of Central Bank Digital Currencies (CBDCs): Asia and beyond

ACI hosted a webinar CBDC and the Digital Economy: Insights for Asian Emerging Markets on September 28th, 2022. Dr. Taojun Xie was the moderator, Prof. Yiping Huang and Dr. Ammu George were the presenters. On the panel were industry experts – Her Excellency Dr. Serey Chea, Dr. Taimur Baig, and Dr. Xuan Wang. Dr. Xie opened the webinar with an introduction to the Central Bank Digital Currency (CBDC). Many Asian countries such as China, Singapore, and Cambodia have begun research or pilots on CBDCs which warrant an in-depth discourse on the topic. Going beyond national projects, cross-border real-time payment networks are also being established such as the multi-CBDC projects. Strong interconnectedness underpinned by digital economy growth will further foster growth in digital platforms, the ICT sector, and related industries.

CBDC Development in China

Turning the focus to China, Prof. Huang elaborated on the country’s experience with CBDCs, and the challenges faced. Broadly motivated by the turbulence caused by the global financial crisis of 2008 and the resultant loss of confidence in the US Dollar as the reserve currency, China’s central bank began exploring currency alternatives. After much research, eCNY or the digital yuan was launched in 2020 albeit in a small number of cities. The purpose was to further improve the financial inclusion of the Chinese citizenry. It would enable the People’s Bank of China (PBC) to centralize financial data and leverage it to further improve efficiency and promote innovation in digital payment systems. For a successful wider rollout, Prof. Huang elucidated certain features that must accompany the eCNY.

Monetary Policy Implications of CBDCs

Lending further support to Prof. Huang’s arguments about the proliferation of digital payment systems, Dr. George presented the findings from a research paper co-authored with Dr. Xie and Dr. Joseph Alba. The policy benefits of an interest-bearing CBDC include the ability to use CBDC as a secondary monetary policy tool to control inflation, achieve exchange rate stabilization, and help central banks relax the macroeconomic trilemma. The CBDC, in essence, would then provide monetary policy flexibility to the central banks. This is especially important for emerging economies that are aiming to stabilize foreign exchange rates. Dr. Wang, the discussant identified a few policy questions for further research such as gauging the change in optimal CBDC rule in case of variation in household’s demand elasticity for CBDC and understanding how CBDC interest rate would compare with traditional instruments to get around the trilemma issue in terms of price stability and welfare.

Panel Discussion: Financial Inclusion, Data Regulations, and Asian Payment Network

Furthering the discussion, Dr. Chea spoke about the benefits of improved domestic and cross-border payments to the SMEs. However, to fully reap these benefits, Dr. Chea remarked that certain challenges such as digital literacy must be addressed in the short-term.

Picking up on the need for collaboration across sectors, Dr. Baig explained that although electronic payment methods and the idea in itself were not new, the pandemic, however, created compelling use cases for improving digitization and developing digital solutions. The greatest benefits of using CBDCs would come from banking the unbanked sections of society – an economic vulnerability exposed by the Covid-19 pandemic. After the moderator opened the floor to an open discussion, the panel discussed on the possibility of greater dollarization of the world economy in case retail digital USD becomes available. Although there are caveats pertaining to digital USD, the chances of the next reserve currency being digital are extremely high. This arises the need to address the challenges in the effective implementation and utilization of the CBDCs.

By Shubhangi GUPTA

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