The electronic Renminbi (e-RMB)

Basics of Chinese Currency

• RMB is an abbreviation for 'Ren Min Bi', which means 'People's money'. Yuan is the base unit of RMB just as Dollar in USD. (1 RMB = 10 jioa = 100 fen)
• Chinese money comes by two names: Renminbi is the name of the currency and yuan refers to its primary unit.
• Renminbi is the official currency of China and act as a medium of exchange, but the yuan is the unit of account of the country's economic and financial system.

Reasons behind launching e-RMB

1. Replacing the dollar - A soverign digital currency provides a functional alternative to the dollar settlement system and blunts the impact of any sanctions or threats of exclusion both at a country and company level. China has successfully achieved Trade Globalisation, Economic Globalisation, and Military and Geo-strategic Globalisation, but it has failed to achieve Financial Globalisation. Without Financial Globalisation it is not possible to replace the Dollar as the World's Reserve Currency.
2. Finacial Globalisation of China - It may also facilitate integration into globally traded currency markets with a reduced risk of politically inspired disruption.
3. More control - Because cash transaction were offline and transaction data from existing payment platforms was scattered, the Central Bank of China (PBoC) was unable to monitor cash flow in real time.
4. Rise of Private Money - There is a growing sense that Central Banks worldwide should issue a digital version of cash to prevent the 'privatisation' of money by commercial entities and IT firms!
5. Chinese Blockchain exists - China has in the past week made its Blockchain-based Service Network (BSN), available for global commercial use, according to reports. The BSN, led by Chinese government-backed think tank State Information Centre, is a global infrastructure that claims to help projects create and run new blockchain applications for a lower cost. It also aims to accelerate the development of smart cities and the digital economy.
6. Imapact of Coronavirus - The still-raging novel coronavirus pandemic and the higher health and hygiene awareness among the masses have also added impetus to the trial of the digital currency. While there has been a dramatic drop in the cash in circulation in Wuhan, the initial ground zero of the viral outbreak, most retailers there refuses to accept coins or paper money as a precaution against highly contagious pathogen.

Technical details of e-RMB (CBDC)

• PBoC's Digital Currency Research Institute does not want a Blockchain-based approach as it is a decentralised and distributed digital ledger, and PBoC's role will be centralised bookkeeping and administration (and Chinese state is authorisation with total central control).
• The soverign digital currency will be pegged to the natioanl currency. The digital yuan e-RMB will have the same legal tender status as cash.
• China's Digital Currency Electronic Payment (DECP) poject for a digital yuan began in 2014. Official launch may be in May 2021.
• The PBoC will be the sole issuer of the digital yuan, initially offering the digital money to commercial banks and other operators. Public would be able to convert money in their bank accounts to the digital version and make deposits via electronics wallets.
• The technology allows the digital currency to be exchanged without an Internet Connection, and that it can be used to make contactless payments.
• Many 'Central Bank Digital Currencies' (CBDCs) are being thought of across the world. The interest in CBDCs is due to the factor like declining cash use and plans for privately owned 'stablecoins', such as Facebook's Libra.
• The Swiss Financial Market Supervisory Authority (FINMA) confirmed in April that it had received an application for a payment system licence from the Geneva-based association governing Facebook's planned cryptocurrency Libra.
• The Central Bank of France (The Bank de France), and the UK (Bank of England (BoE)) are also both moving forward in respect of CBDCs.

China's monetary system and e-RMB

• What happens to the existing money? Other forms of money supplies and savings like M1 (the total amount of M0 outside of the private banking system, the amount of demand deposits and other checkable deposits) and M2 (M1 plus savings accounts and money markets accounts etc) will remain unchanged.
• Actually, a part of the nation's M0 supply will be digitized. M0 supply is the monetary base that is the total of all physical currency including coinage. China's M0 supply stood at 8.3 trillion yuan (UD$ 1.17 trillion) in 2019. But annual increase in this has slackened to just 3-4% since 2012 and is impressive to the surges in credit and loans.
• Compared this with double-digit growth in M0 throughout 2000-2010 period. PBoC governor Yi Gang said all paper money already issued and in circulation ot deposits will not be affected. But the cash system needs to be reformed now. Velocity of the money in circulation will not be disrupted either.
• Digital payment platforms are already widespread in China, namely AliPay, owned by Alibaba's Ant Financial, and WeChat Pay, owned by Tencent, but they do not replace existing currency. With PBoC's backing, the e-RMB will gain traction fast and give the duopoly of AliPay and WeChat Pay tough competition.
• PBoC clarified that transactions facilitated by these platforms fall in the category of M1 and M2 and would not be affected when part of the nation's M0 supply digitalised. The PBoC is starting trials in Shenzhen, Suzhou, Chengdu, and Xiong'an, a new national development zone on the outskirts of Beijing.

What changes now is the Dollar ($) threatened?

• The upcoming digital yuan will be 'tokenized' money, fully backed by the central bank of the world's second largest economy.
• Its value draws from the Chinese State's ability to impose taxes in perpetuity. Other national authorities are bound to follow soon.
• The token will be a private blockchain, a peer-to-peer network for sharing information and validating transactions, with the People's Bank of China in control of who gets to partcipate. To begin with, the currency will be supplied via the banking system and replace some part of the physical cash. That won't be hard, given the ubiquitous presence of Chinese QR code-based digital wallets such as AliPay and WeChat Pay.
• It will start small, but the digital yuan can disrupt both traditional banking and the post-Bretton Woods system floating exchange rates that the world has lived with since 1973. For China, blockchain and the yuan digital currency are a national strategic priority - almost at the level of the internet.