New Release Speed Reading | The Inclusive Value of Central Bank Digital Money

Song Ke, Professor at the School of Finance and Economics, Renmin University of China, Research Fellow at the International Monetary Research Institute of the China Finance and Financial Policy Research Center

Sun Yi, Associate Researcher at the Institute of Financial Technology, Renmin University of China

The original text is from: “Financial Market Research” 12th issue of 2024

1. Introduction: A New Chapter in Financial Technology

In the vast galaxy of financial technology, central bank digital currency (CBDC) is like a rising new star, adding new radiance to the road of inclusive finance. The “State Council’s Implementation Opinions on Promoting the High-Quality Development of Inclusive Finance” (Guo Fa [2023] No. 15) also includes the research and development pilot of digital RMB in the construction of the digital inclusive finance ecosystem. This article will delve into how central bank digital currency can boost inclusive finance. Starting from the technical features of central bank digital currency, it analyzes its marginal improvements in areas such as cash payments, mobile payments, and cross-border payments, as well as the “technology-economic” logical path combined with the inclusive financial system.

Central Bank Digital Currency: The New Engine of Inclusive Finance

① Definition and classification of central bank digital currency. Central bank digital currency, as a liability of central banks in the digital age, has legal and digital characteristics. It is divided into retail and wholesale types, with the former targeting the public and the latter mainly used for transactions between financial institutions.

The logic consistency between the central bank’s digital currency and digital inclusive finance. The central bank’s digital currency has significant logical consistency with digital inclusive finance in addressing financial exclusion and can greatly solve problems such as weak financial infrastructure, insufficient coverage of bank accounts, lack of credit data, and high cross-border payment costs.

According to the G20 financial inclusion indicators, the availability and usage of financial services, as well as the quality of financial services, are the core dimensions for measuring the development of financial inclusion in the region. The availability and usage of financial services reflect the coverage of financial services from the supply and demand sides, representing the ‘inclusive’ of financial inclusion; while the quality indicators of financial services reflect the effectiveness of financial services, representing the ‘benefit’ of financial inclusion.

The Inclusive Value of Central Bank Digital Currency: Based on the Perspective of “Universal”

Expand the boundaries of digital payments. The design of the central bank’s digital currency, through ‘loose coupling of accounts’ and offline payment, enables financial services to cover a wider range of regions and groups, especially those in remote areas that traditional financial services and mobile payments are difficult to reach. The design of aging and disability assistance also facilitates inclusive financial services for vulnerable groups.

2. Improve the acceptance of digital payments. The security and privacy protection measures of the central bank’s digital currency can enhance the public’s trust in digital payments, thereby increasing the acceptance of digital payments.

The Inclusive Value of Central Bank Digital Currency: A Perspective Based on “Benefit”

Cost and efficiency are issues worthy of attention in the quality of financial services, i.e. the ‘cost-effective financial services’ emphasized by the G20 for the development of inclusive finance.

①Optimize the convenience of payment and lending. The digital characteristics of the central bank’s digital currency make it significantly more convenient for payments than cash, while also reducing the impact of a single commercial company or private payment system on the entire payment system. Commercial banks and various payment service providers will compete fairly in the new system.

② Enhancing the intelligence of payment services. The central bank’s digital currency can load smart contracts to provide smarter inclusive financial services, such as conditional payments and scheduled payments, thus improving the intelligence level of payment services. By setting loan usage conditions, it can also prevent funds from small and micro enterprises’ loans from flowing into areas such as wealth management and real estate that do not match the intended purpose of the loan, making inclusive finance more ‘authentic’.

③ Promote cost reduction and efficiency improvement of cross-border payments. The issuance and use of wholesale central bank digital currencies provide round-the-clock cross-time zone payment services, which will significantly reduce the time and cost required for cross-border payments, while improving transaction traceability and reducing operational and credit risks.

V. Outlook: The Inclusive Path of Central Bank Digital Currency

①The combination of theory and practice. Actively and steadily promote the digital RMB, continuously accumulate and moderately open pilot data, provide a data basis for quantitative research, and continuously improve the theory based on the latest developments.

2. Strengthening of technical research and education promotion. The technical research of the central bank’s digital currency is the basis for its systematic operation, and public acceptance is the key to its popular application. The government needs to actively promote the popularization and education of knowledge about the central bank digital currency, so that the public and financial institutions can fully understand the inclusive value of the central bank digital currency.

③Improvement of issuance and promotion environment. Building a diversified and efficient digital inclusive financial ecosystem requires the joint efforts of all participants in the financial system. In the pilot process, we need to gradually explore the legal regulations, application standards, incentive systems, etc. required for the issuance and promotion of central bank digital currency, and promote the high-quality development of digital finance and inclusive finance.

Source: Sina

Author: China Financial Information Network