By 2021, over two-thirds of countries across the globe were exploring the
way to issue a CBDC, among which China has taken the lead. The Chinese CBDC –
DCEP has been on trial in various cities and areas, which heralds its general application
in the near future. However, by elaborating on the main features of the DCEP, this
paper discerns several challenges that the DCEP may have to face owing to the special
regulatory design – setting the reserve rate for the DCEP at 100% – to cater to the need
of the internationalization of the Renminbi (‘RMB’). This paper maintains that this
approach cannot achieve the goal as contemplated. Instead, it would invoke the severe
issue of narrow banking. To prevent this negative externality, as well as to stave off the
risk of a systemic bank run, this paper proposes to adopt differentiated treatments for
various types of digital wallets holding the DCEP.
Keywords: Bank run, Central bank digital currency (‘CBDC’), DCEP, Digital wallets, Reserve rate.
