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The People’s Bank of China (PBoC) has made significant progress towards an eventual launch of e-CNY. Economists at HSBC think e-CNY is unlikely to have exchange rate implications over the near-term, but it could support CNY internationalisation.

Key quotes

“We believe the e-CNY could be ready for nationwide adoption in 2022 or 2023.”

“Currently, the PBoC is only aiming for the e-CNY to partially replace physical currency in circulation domestically. Like cash, at least initially, it would not pay interest. It is intended for spending, not speculating. Unlike popular digital currencies whose values fluctuate or are fixed to a basket of currencies, it would not be traded on exchanges. Thus, there are basically no exchange rate implications over the near-term.”

“In the long-term, it is possible that the e-CNY could become used outside of China – especially in those countries with weaker institutions, high inflation and economic linkages with China. Foreign demand for the e-CNY would then rise, supporting the yuan, especially against the foreign currencies it is displacing. But this scenario of CNY internationalisation is not a foregone conclusion and we believe other conditions are necessary. The e-CNY must be at the forefront of digital currencies in user-friendliness, security, and settlement technology, but the Chinese authorities also have to relax capital restrictions further, in particular, allowing capital outflows more freely. International users need to have more confidence in the renminbi too.”


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