The Global Competition For Issuing Central Bank Digital Currency (‘CBDC’) And The Design Of Its Regulatory Framework - A Review Of The Development of CBDCs In China

By 2021, over two-thirds of countries across the globe were exploring the way to issue a CBDC, among which China has taken the lead. The Chinese CBDC – DCEP has been on trial in various cities and areas, which heralds its general application in the near future. However, by elaborating on the main features of the DCEP, this paper discerns several challenges that the DCEP may have to face owing to the special regulatory design – setting the reserve rate for the DCEP at 100% – to cater to the need of the internationalization of the Renminbi (‘RMB’). This paper maintains that this approach cannot achieve the goal as contemplated. Instead, it would invoke the severe issue of narrow banking. To prevent this negative externality, as well as to stave off the risk of a systemic bank run, this paper proposes to adopt differentiated treatments for various types of digital wallets holding the DCEP.