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China’s Central Bank Digital Currency (DCEP) Will Accelerate the Economy

It seems that the talk about China’s central bank digital currency (DCEP) is beginning to heat up. The project has taken off from a theoretical plan to practical execution in just a few months, putting China at the head of the race to launch a digital national currency.

Aside from giving the country the obvious advantage of being early to the phenomenon of digitizing fiat currencies, DCEP will also have an incredibly positive effect on China’s economy. According to a report from Yicai, China’s DCEP is expected to accelerate the “internal cycle” of the country’s economy. For years, the country has been trying to implement a more circular economy, both in order to maximize growth and decrease its dependence on other countries.

Introducing DCEP will allow the country to maintain a unique and scarce configuration of its economy “for a long time,” the publication wrote earlier this week. With the ongoing COVID-19 pandemic, the “outer circle” of the global economy has been significantly obstructed—an unfortunate occurrence that emphasizes the importance of countries having a self-relying economy.

However, no country can be completely separate from the global economy, which presents a whole new set of problems in itself. With the stability of the global monetary policy at risk, economies would need to find a way to circumvent it.

China has taken on the development of its own central bank digital currency (DCEP) as the best and probably the only solution to this problem. By using DCEP as a fulcrum, the digital upgrade of China’s monetary policy is expected to go faster and smoother. Aside from that, specific policies and regulations are expected to be improved.

DCEP will also help the country form an “e-money zone” for the yuan outside China, offsetting outside interference with its economy and maintaining the independence of its monetary policy.

“These effects show that the future application of DCEP is expected to accelerate the “internal cycle” operation of China’s economy,” Yicai wrote. “Therefore, even in the era of the pandemic, China’s economy and finance are expected to maintain a unique and scarce allocation value for a long time.”

The consequences of the ongoing pandemic will be felt in the years to come, the publication concluded. Coming years will be characterized by the continuous rise of protectionism, populism, and de-globalization. Applying new technologies and models to the internal cycle of China’s economy will be the only way the country will be able to overcome all of the upcoming hardships.

With the overwhelming number of pilot projects and blockchain initiatives currently at work in the country, DCEP is expected to make good use of China’s burgeoning digital infrastructure. From an internal point of view, with DCEP as the fulcrum, the digital upgrade of monetary policy tools is expected to expand policy space and enhance policy effectiveness in China. Aside from drastically reducing transaction costs, DCEP also has the ability to improve credit efficiency and make payments more convenient to users.

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