What is Ground-breaking about Digital Renminbi?

25 Sep 2020

Technology is, without a doubt, reshaping the global financial system. Among others, Central Bank Digital Currency (“CBDC”) is making the impossible possible.

What is it?

In essence, CBDC is the digital form of fiat money and, unlike other decentralised virtual currencies and cryptocurrencies, issued by a state with a legal tender status declared by the government. Notably, some 80% of the global central banks are engaging in some sort of work in relation to CBDCs.1 Behind the strong interest and keen participation globally, CBDC is more than a mere replacement of money to avoid contact with physical cash amid COVID-19, but has embedded layers of features that one could hardly have imagined years ago.

China is one of the earliest countries to have embarked on the journey of developing its own CBDC: the digital Renminbi (“RMB”), namely Digital Currency Electronic Payment (“DC/EP”). While there is not much official information about the subject, market participants expect DC/EP to become one of the most exciting fintech developments.

What are the main features?

Fully backed by the credit of People’s Bank of China, DC/EP is a legal tender that is backed by RMB in a 1:1 ratio. As surprising as it may sound, such ‘digital’ RMB does not necessarily require both the paying and receiving terminals to be online to carry out a transfer of payments between two DC/EP wallets.

Another breakthrough is that DC/EP would allow even those who do not have bank accounts to use it for small-amount transactions, granting financial access to the unbanked population. Given such nature, the presence of DC/EP could streamline the distribution of government financial aids to some 200 million rural, unbanked population.2

Moreover, DC/EP preserves controllable anonymity whilst enabling transactions to be traceable, which would be useful in countering such illegal activities as money laundering. Building on the trackable series of transactions, policymakers would be able to strengthen the implementation of monetary policies and enforceability of other laws and regulations.

How much progress has been made?

According to Xinhua News, the country has commenced the exploration of putting DC/EP into real-life testing earlier this year. Internal closed pilot tests were conducted at locations including Shenzhen, Suzhou, Xiong’an New District, Chengdu, as well as sites for the coming Winter Olympics.3

Why is it important to Hong Kong?

Along with the development of DC/EP, a potential matter for Hong Kong to consider and be prepared is the DC/EP’s use cases in Hong Kong. DC/EP may have its implications reached to such areas as interbank payments, expansion of mutual market access and RMB internationalisation.

Behind the excitement about these implications of DC/EP, it is crucial for Hong Kong to set our regulations and other financial infrastructures such as risk management systems ready.

In this connection, the FSDC has formed a working group to look into these matters and we hope to have our findings and recommendations ready soon to generate more heated industry discussion.


Jim Lai
Board Member; Policy Research Committee Convenor

Shusong Ba
Mainland Opportunities Committee Member

King Au
Executive Director

Financial Services Development Council



1 Bank for International Settlements, Impending arrival – a sequel to the survey on central bank digital currency, January 2020.

2 World Bank Group, The Global Findex Database 2017 - Measuring Financial Inclusion and the Fintech Revolution, April 2018.

3 Xinhua News, PBOC: Digital RMB closed test will not affect the issuance and circulation of RMB, April 2020. (in Chinese only)

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