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

As several economies across the world are eyeing the much-anticipated move from physical to digital with the implementation of digital fiat currencies, China has introduced its digital fiat currency, namely 'e-CNY' or the 'e-RMB', in the domestic futures market. According to China News Service, the Dalian Commodity Exchange (DCE) has used e-CNY for the payment of storage fees to a delivery warehouse, assisted by the 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?

The e-CNY, or digital yuan, is a centralized, cash-like digital currency that is expected to be primarily used for retail payments in China. The People’s Bank of China (PBOC), the 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 the digital Yuan is to compete with the blockchain technology currencies such as Bitcoin, as well as other central banks' digital currencies (CBDC).

China News Service has stated that China has launched e-CNY pilots in several cities since the 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 the digital revolution as the Reserve Bank of India is also working towards launching its own digital currency in the 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 the banking system and the monetary policy.

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

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

'Protection from volatility of virtual currencies'

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

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

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

(With PTI inputs)