THE BENEFITS AND RISKS OF ISSUING A CENTRAL BANK DIGITAL CURRENCY

Abstract

Many central banks around the world are exploring and even piloting Central Bank Digital Currencies (CBDCs). The People’s Bank of China is one of those central banks that are piloting the central bank digital yuan (also called central bank digital RMB) in many cities in China. This thesis demonstrates the benefits and risks of issuing a CBDC, especially focusing on the impact of issuing the central bank digital yuan, from six aspects. Chapter 1 provides a brief introduction of CBDC and its relevant underlying technologies for implementation. Chapter 2 provides an analysis of why central banks are interested in CBDCs and why the People’s Bank of China even pilot CBDC in China. Chapter 3 provides a detailed description of the implementation of the digital yuan from the perspective of wholesale, retail, operation, microeconomy, and technology, respectively. As is well-known, digital wallets such as Alipay and WeChat Pay are prevailing payment methods in China. Take digital yuan as an example, chapter 4 provides a comparison among Alipay, WeChat Pay, and central bank digital yuan from a practical perspective. Chapter 5 analyzes the positive and negative implications of issuing a CBDC for the macroeconomy and possible monetary issues. Chapter 6 explores the pros and cons of CBDCs for legal considerations, including fraud detection, taxation, and anti-money laundering.