Monetary base

Business

Monetary policy

Currency

Economics

Monetary economics

Devaluation

Financial system

Virtual currency

Digital currency

China Economic Journal

Central Bank Digital Currency (CBDC) contributes to optimizing payment functions of fiat money, reducing reliance on payment services provided by the private sector, alleviating regulatory burdens and pressure on the central bank, and strengthening the authority of fiat money. Moreover, issuance of CBDC helps to address dilemmas of modern monetary policies, including inefficiencies in policy transmission, difficulties in countercyclical control, flow of currency away from the real economy to the virtual economy and inadequate management of policy expectations. This paper proposes a CBDC issuance framework based on forward contingencies. The incorporation of time, sector, and loan rate contingencies in the activation of CBDC will realize real-time transmission of monetary policy, enable targeted supply of money and prevent the currency from circulating beyond the real economy. The economic state contingency makes it possible to exercise countercyclical control of currency. The embedment of these contingencies also enables currency to perform the function of forward guidance.

Central Bank Digital Currency: optimization of the currency system and its issuance design