Why is China coming up with a digital currency?

The significance of DCEP is that it’s designed as a replacement of the Reserve Money(M0)system, cutting back the cost and friction of bank transfers.It is suggested that DCEP will alleviate the risks of offline paper money transactions such as anonymous counterfeiting,money laundering and illegal financing.This is because regulators can better monitor digital currency transactions, which some consider will greatly improve financial and monetary supervision.DCEP can also reduce the costs involved in maintaining and recycling banknotes and coins.

Furthermore, the issuance of DCEP is conducive to promoting the internationalization of the RMB and reshaping the current cross border payment system.This is because prior to the RMB Cross-Border Inter-Bank Payments System (CIPS)going live in early October 2015,RMB cross border clearing and settlement was mainly done through CHIPS (Clearing House Interbank Payments System)or SWIFT (Society for Worldwide Interbank Financial Telecommunication).However, some consider that both the CHIPS and SWIFT systems have fatal flaws.Firstly, CHIPS is a US company.SWIFT, in particular, is seen as a cause for concern to the Chinese because due to its foothold in the international banking system, it is almost essential to use SWIFT for inter-bank transfers across countries.Thus whoever controls SWIFT’s data center will have access to information on almost every cross-border remittance,which some in China posit is the US.This is because whilst SWIFT claims to be a neutral international organization, 12 of the 25 directors are either from the US or from her allies.Also, its transactional data were found to have been supplied to the US.Hence it is thought that China is being held back by the US via the SWIFT system, and so, in internationalizing the RMB, China requires its own world-wide banking system, i.e.DCEP.Hence the Chinese consider that it is a requirement to form a new currency clearing network.