China's digital currency 'e-CNY' or 'e-RMB' debuts; first transaction a warehouse payment

As several economies across world are eyeing much-anticipated move from physical to digital with implementation of digital fiat currencies, China has introduced its digital fiat currency, namely 'e-CNY' or 'e-RMB', in domestic futures market. According to China News Service,  Dalian Commodity Exchange (DCE) has used e-CNY for  payment of storage fees to a delivery warehouse, assisted by local branches of Bank of Communications and Bank of China. This comes amid China cracking down on cryptocurrency mining and crypto within its borders, as blockchain-based currencies are decentralised by definition.

What is China's digital fiat currency?

e-CNY, or digital yuan, is a centralized, cash-like digital currency that is expected to be primarily used for retail payments in China. People’s Bank of China (PBOC), central bank, and e-CNY operating institutions have conducted large scale e-CNY pilot programs in multiple cities. According to Deutsche Bank research, China's push for digital Yuan is to compete with blockchain technology currencies such as Bitcoin, as well as or central banks' digital currencies (CBDC).

China News Service has stated that China has launched e-CNY pilots in several cities since end of 2019, which was joined by Dalian in November 2020. As of June 30 this year, e-CNY has been applied in over a million cases, covering utility payments, catering, transportation, shopping, and government services.

India introducing digital currency?

India seems to be catching up with digital revolution as Reserve Bank of India is also working towards launching its own digital currency in near future. RBI is currently working towards a strategy for phased implementation of digital currency and examining cases that could be implemented with little or no disruption in  banking system and monetary policy.

Last month, RBI Deputy Governor T Rabi Sankar said central bank is working on a phased implementation strategy for India's own digital currency and is in process of launching it in wholesale and retail segments in near future.

"... conducting pilots in wholesale and retail segments may be a possibility in near future. So, some progress has been me. You know we could likely come up with this in near future," Sankar h said on July 23 during an online discussion organised by Vidhi Centre for Legal Policy. He h said that idea of Central Bank Digital Currency (CBDC) is ripe and many central banks in world are working towards it.

'Protection from volatility of virtual currencies'

This assumes significance for Indian markets as cryptocurrencies continue to gain popularity across world while several countries and economies show reluctance to accept decentralised system of blockchain technology on which cryptocurrencies work. Although blockchain technology is touted to be currency of future by several observers and experts, volatility and risk involved in investment in cryptocurrencies is something central authorities across world cannot ignore.  RBI Deputy Governor said CBDCs are needed to protect consumers from volatility of virtual currencies which have seen drastic fluctuations in ir value. 

Consequential amendments will also be required in Coinage Act, Foreign Exchange Management Act (FEMA) and Information Technology Act to introduce digital currency, according to Sankar. RBI is looking into se aspects along with underlying technology and validation mechanism for CBDCs as associated risks also need to be thoroughly evaluated along with potential benefits, revealed RBI's Deputy Governor.

In India, a high-level inter-ministerial committee constituted by Ministry of Finance has examined policy and legal framework and has recommended introduction of CBDC as a digital form of fiat money in country.

(With PTI inputs)