China could potentially use its central bank digital currency (CBDC), the digital yuan, to influence and control interest rates. That’s a suggestion made during a speech by Lu Lei, the deputy director of China’s State Administration of Foreign Exchange (SAFE), a division of the People’s Bank of China.
Lu Lei observed the digital yuan (eCNY) was positioned as an “interest-free, high-energy currency” for the purposes of cash transactions (M0). According to news outlet Yicai, he went on to say, “I personally believe that, based on the programmability of digital currency, (if) smart contracts for interest rates are loaded on the central bank’s digital currency, the central bank’s digital currency will have the opportunity to become broad money (M2).”
Lu also discussed the potential for the eCNY in financial supervision to increase the effectiveness of China’s regulatory authorities. With “payment and accounts as the core” of oversight, it is possible for the central bank to achieve “full-process monitoring and penetrating supervision”.
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