The Development of Central Bank Digital Currency in China: An Analysis

The People's Bank of China (PBOC) has launched an ambitious project to develop a digital currency for use in domestic, retail transactions, and is, by far, the most advanced globally in this regard. In addition to involving a diverse set of stakeholders, the PBOC established a set of fundamental principles, including privacy, inclusiveness, and conservatism, and has articulated its progress in a public document translated into English. We maintain that although both its first principles and its conclusions drawn from the research conducted by the PBOC from 2014 to date are broadly reasonable and appropriate, the PBOC has also missed some important considerations and entertained some questionable assumptions, which many central banks around the world have also done. In this analysis, we consider the strengths and weaknesses of the digital currency proposition articulated by the PBOC as it exists today, and we propose one fundamental and specific change for the PBOC and other central banks around the world: The architecture must accommodate privacy-preserving, non-custodial wallets. With this change and a related set of minor adjustments, China has an opportunity to lead the world in the implementation of a central bank digital currency (CBDC) solution that protects the authority of the central bank to implement monetary policy, preserves the role of public-sector and private-sector banking institutions, promotes the efficiency of retail transactions and businesses, satisfies regulatory objectives, and safeguards the human rights of retail consumers, including their privacy and their right to participate in the economy. We hope that the PBOC, and other central banks around the world, will have the resolve and strength of purpose to implement our proposed change and carry on with implementing a CBDC architecture that serves the interests of its users.