Digital currency can help meet new financial challenges

Mu Changchun, deputy director of China's central bank's payments department, said recently that the People's Bank of China is working on its own digital currency, which may be launched soon.

According to Mu, a centralized management model and two-tier operation system will be used to manage the central bank's digital currency. The central bank will be the upper-tier operator facilitating the exchange of the digital currency at banks and other financial institutions, with the banks and other financial institutions forming the lower tier.

Under this operating system, commercial banks and other financial institutions have to deposit the full amounts they expect to exchange with the central bank as reserves. Which indicates the central bank's digital currency will have the characteristics of infinite legal tender, and the nature of the digital currency will be digitalized yuan. The central bank's digital currency will be like a technological upgrading of the legal tender, which will not change the monetary attribute of bank reserves and cash.