Hong Kong Economic Herald:
What is the progress of the cross-border digital currency project being jointly promoted by the PBC and the Hong Kong Monetary Authority? During the 14th Five-Year Plan period, what measures will the central bank take to support Hong Kong in consolidating its position as an international financial center? Thank you.
Liu Guiping:
Mr. Wang Xin will answer this question.
Wang Xin:
Thank you for your question. China's digital renminbi (RMB) is mainly designed for domestic retail payments. However, when the conditions are suitable, if there is such a demand in the market, the use of digital RMB for cross-border transactions can also be accomplished. In the early stages, the PBC's digital currency research institute and the Hong Kong Monetary Authority (HKMA) conducted technical tests on the cross-border use of digital RMB in the mainland and Hong Kong, which was a routine R&D test for the RMB pilot. The digital RMB is being tested in several regions and scenarios across China, including at the Winter Olympic Games. There have been more and more diverse test scenarios for the digital RMB. At the same time, we have also been working with the HKMA to carry out certain technical tests on its cross-border use. Recently, with the support of the Bank for International Settlements' Innovation Hub Hong Kong Centre, the PBC's digital currency research institute and the HKMA, the Bank of Thailand and the United Arab Emirates have jointly initiated a research project on multilateral central banks' digital currency bridges, which aims to explore the use of distributed ledger technology to realize round-the-clock simultaneous settlement in cross-border transactions of central bank digital currency pairs, that is payment-versus-payment (PvP) link. Central bank digital currency has been a hot topic internationally. Many central banks have been conducting research and explorations, and similar cooperation projects have been carried out between different central banks. So, the PBC has also been exploring the feasibility of digital RMB. Thank you.
Yicai:
From the latest meeting of the Federal Reserve, we can see that their monetary policy seems to be a little bit dovish, but U.S. bond yields continue to climb, and inflation expectations in the U.S. are also very strong. Now many analysts think that the Federal Reserve will raise interest rates or reduce its balance sheet in advance. Some worry that there may be spillover effects. What will be the effects? What's your opinion on that? Thank you.
Liu Guiping:
Thank you for your question. This question draws wide attention nowadays. I will invite Mr. Sun to answer this question.
Sun Guofeng:
Thank you. In 2020, China was the only major economy in the world to register positive growth and one of the few major economies to adopt normal monetary policies, which not only advanced the global economic recovery but also supported the normalization of monetary policies of other major economies. We have noticed that the U.S. treasury yield increased to over 1.75%, which drove the appreciation of the dollar. The U.S. dollar index has risen by 3.6% since the beginning of this year. Affected by that, some emerging economies face rising risks in repaying debts and refinancing. The pressure of currency devaluation amounts. Some economies raise their interest rates and fluctuations occur in the financial market. China has always stuck to normal monetary policies. From February to April last year, we took rather strong measures in response. After May of 2020, the monetary policies returned to normal, which greatly bolstered anti-epidemic prevention and control, and social and economic development, while not resorting to a deluge of excessive stimulus policies. We can see that China's national debt yield has remained stable since the recovery, and the free floating of renminbi exchange rate has become a normality, which serves as an automatic stabilizer for the macro economy and international balance of payment. Therefore both the massive monetary stimulus measures introduced by the Fed last year and future adjustments to monetary policy by the Fed will have relatively little impact on China's financial markets. In fact amidst the recent sharp volatility in global financial markets, especially in emerging economies, China's financial markets are running smoothly, the RMB exchange rate is floating freely and the 10-year Treasury yield is currently around 3.2%, which is still lower than the previous period. The positive effects of China's normal monetary policies have been delivering results. As the next step, the key is to get our own affairs in order. We will adopt stable monetary policies, retain our focus, and cherish the space for normal monetary policy. Meanwhile, we will keep a close eye on changes to the international economic and financial situation, increase the exchange rate's flexibility, coordinate international macro policies in line with China's conditions, and maintain a good macro policy leadership posture. We are pleased to see other economies seeking to return to normal monetary policy, which is beneficial to the long-run sound development of global economy. Thank you.
