China has launched a digital currency through a series of pilot projects starting last year. eRMB has the potential to change the power balance between Chinese technology giants and traditional state-owned large banks, thereby indirectly improving the international competitiveness of banks.
The People’s Bank of China issues eRMB to a group of authorized large state-owned banks and other designated financial institutions, and these banks and institutions provide the money to end-users of digital currency such as households and businesses. Unlike the digital currencies discussed by some other central banks, Chinese households and businesses will not have eRMB accounts directly with the central bank, so that the PBOC can be shielded from any potential glitches.
Those authorized institutions can only see a part of the digital footprint of an individual or business, such as deposits and withdrawals using eRMB, and they cannot retain information for longer than necessary. This is “anonymity” in “controllable anonymity”. And “controllable” means that the People’s Bank of China can see the complete activity record of a specific eRMB unit, and it can choose whether to use or share this information. By replacing China’s physical banknotes and coins, eRMB will save the People’s Bank of China the cost of printing and issuing new currency, as well as the cost of regularly replacing some of its cash, which costs billions of yuan each year.
