Full Terms Guizhou Big Data Policy and Legislation Innovation Research Center, Guizhou ,China,550002) ABSTRACT From both theoretical and practical perspectives, we examine the global development and competition of digital currencies, and investigate the design of Chinas central bank digital currency (CBDC). Moreover, on the basis of correcting shortcomings in the existing literature, we undertake a quantitative analysis of the economic impact of the issuance of DC/EP based on a four-sector DSGE model. The results demonstrate that the substitution effect of DC/EP on bank deposits is limited, while the unit impact can enhance the economic growth rate by 0.15% and the overall eco- nomic effect is positive, at the same time it reduces the leverage ratio to a certain degree, which is conducive to reducing systemic financial risk. Therefore, we contend that China should accelerate the research and development of DC/EP and launch pilot schemes to promote DC/EP. Moreover, China should actively participate in the drafting of international regulations for digital currencies, selec- tively liberalize the jurisdiction of overseas nodes, jointly establish an integrated digital infrastructure for future generations. KEYWORDS Central bank digital currency; global stablecoin; crypto digital currency; economic impact In the wake of the rapid growth of the digital economy, the digitization of currency, as the basic infrastructure and core variable of modern economic finance, has become the trend of historical development. In fact, with the integration of modern digital technologies such as the internet, artificial intelligence, and blockchain amongst others, the concept of money itself is becoming increasingly vague, showing a tendency of redefinition. In summary, there are three categories of digital currencies that have potential impacts on the international monetary and financial system: the first is encrypted digital currency represented by Bitcoin and Ethereum, the second is global stablecoin as represented by Libra and USDT, finally the third kind is digital currency directly issued by central banks (Central Bank Digital Currency, CBDC). In the face of the new circumstances, questions and challenges staked out by competi- tion between global digital currencies, the Central Committee of the Communist Party of China with Comrade Xi Jinping at its helm attaches great importance to the development of Chinas digital currency. In the 21st issue of Qiushi Journal in 2020, General Secretary Xi Jinping proposed that China actively participate in the formation of international regulations on areas such as digital currency and digital taxation. The Proposal of the CENTRAL Committee of the Communist Party of China on Formulating the 14th Five- year Plan for National Economic and Social Development and the Long-range Objective for CHINA ECONOMIC JOURNAL doi/10.1080/17538963.2020.1870282 2021 Informa UK Limited, trading as Taylor the principal issuing bodies of such currency are commercial organizations, which utilize the block- chain and other digital technologies to increase trust, as such in essence stablecoin falls within the remit of commercial credit. With regard to global stablecoin, the most influential organization is the Libra Association, which is mainly composed of the worlds top tier technology enterprises, but Chinas technology companies (such as Tencent, Alibaba, JD, ByteDance, Meituan, etc.) are excluded. In terms of mortgaged assets, Libra includes both a mortgage model based on single currencies such as the US dollar, the euro, the British pound, and the Japanese yen, as well as a mortgage model based on these currency baskets, with renminbi assets also excluded (Wu Tong and Guo Jianluan, 2019). Figure 2 presents the operating mechanism of the Libra economic system, we can find that Libras two-tier economic system has a degree of similarity with the current Central Bank-Commercial Bank binary currency delivery system: the Libra Association is equiva- lent to central banks, whereas dealers are equivalent to commercial banks. However, unlike Figure 1. Comparison of ICO (top) and IPO (bottom) processes. Figure 2. Mechanism the Libra economic system operates. CHINA ECONOMIC JOURNAL 3the account-based Central Bank-Commercial Bank system, Libra is a token-based eco- nomic system that implements peer-to-peer transfers between users, which essentially constitutes a Semi-DeFi (decentralized finance) model (Wu Tong, 2020). The final determination as to whether Libra will ultimately be issued and as to the formulation of international standards set for global stablecoin is in the hands of the G7 central bank with the Federal Reserve at its core, along with a few other international financial organizations as outlined below. For example, the Financial Stability Board (FSB) is responsible for the development of global stablecoin regulatory policy recom- mendations along with the development of a cross-border payment roadmap. The Committee on Payments and Market Infrastructures (CPMI), which is attached to the Bank for International Settlements (BIS), plays a central role in standard-setting for the payment and clearing infrastructure of global stablecoins. The Basel Committee on Banking Supervision (BCBS), which is part of BIS, is responsible for prudential super- vision of the exposure of commercial banks to crypto assets and related services. The Financial Action Task Force (FATF) is primarily responsible for the work of anti-money laundering/counter-terrorism financing (AML/CTF) standards involved in global sta- blecoins. The International Monetary Fund (IMF) is responsible for assessing the impact of global stablecoins on the monetary sovereignty of member states. Finally, the International Organization of Securities Commissions (IOSCO) is responsible for asses- sing the impact of proposals about global stablecoin on stock market regulators (Wu Tong and Li Ming, 2019). In April 2020, the Libra Association released the Libra White Paper 2.0, which made major changes, including abandoning the consortium blockchain in favor of the public blockchain, reflecting a certain degree of consensus between the Libra Association and European and American financial regulators. There have been increasing indications of late that it is only a matter of time before Libra is launched, and this poses a significant challenge to the monetary and financial sovereignty of emerging economies including China. In response to digital financial innovation and improving the effectiveness of mone- tary policy, in recent years many central banks have begun to develop and pilot CBDC, CBDC is the first rung on the ladder to digitizing currency. According to the working report on CBDC released in January 2020 by the Bank for International Settlement (BIS), which surveyed 21 developed economies and 45 emerging economies around the world, at least 80% of central banks surveyed stated that they were actively studying CBDC, while 30% of central banks indicated that they would issue CBDC in the short to medium-term future. For example, the Monetary Authority of Singapore (MAS) launched the Union project to test and verify the digitization of the Singapore dollar in 2016. Canada launched its CBDC pilot project CAD-Coin in 2016. The Bank of England developed the CBDC prototype system RSCoin in 2016. In the same year, the Bank of the Netherlands conducted the DNB Coin test; 2016 also saw Japan and the European Central Bank launching the Stella project aimed at enabling cross-border payment. Sweden launched the E-krona beta project in 2020. Before the outbreak of the COVID-19 pandemic, the Federal Reserve and the US Treasury Department made clear that they would not issue CBDC. However, the outbreak of the COVID-19 pandemic made the United States monetary and financial realize the advantages of CBDC in terms of monetary impact on 4 W. TONG AND C. JIAYOUthe real economy, as such they switched toward considering the issuance of CBDC, however they have not realized any specific proposals or details of the project, far less carried out research and development. The digital currency issued by the Peoples Bank of China has been christened DC/EP (Digital Currency/Electronic Payment), at the current stage it is positioned for use in retail payment, it is currently the global frontrunner in research and development, which can be divided into three stages. The first stage is the early phase preparatory stage of which the major milestones have included: PBoC set up the CBDC special task force to investigate its potential in 2014; PBoC made two rounds of revisions to its prototype scheme for issuing CBDC in 2015; PBoC further made clarifications to the strategic objectives of the issuance of CBDC in January 2016; PBoC further confirmed that the digital bills trading platform will be the setting for the pilot of CBDC and started the closed development of the digital bill trading platform in November 2016; testing of the digital bank acceptance bills platform was held to be successful in February 2017; the CBDC Research Institute was formally established in May 2017. The second phase is the steady development phase, the notable events in this stage have been as follows: the Gold and Silver Bureau of PBoC were tasked to strongly promote the research and development of CBDC in 2018; the CBDC Research Institute established the wholly owned Shenzhen Fintech Co., Ltd in June 2018; the CBDC Research Institute cooperated with Nanjing municipality, Nanjing University, Jiangsu Bank and Nanjing branch of PBoC to establish the Nanjing Fintech Research and Innovation Center for use as a model base; the CBDC Research Institute united with a Suzhou-based construction company (苏州高铁新城国有资产经营管理有限公 ) through Shenzhen Fintech Co. Ltd. to establish the Yangtze River Delta Fintech Co., Ltd in March 2019. This provides the organizational and material basis for CBDC. The third stage is to accelerate the R the State Council officially approved the R the big three telecommunications companies, China Mobile, China Unicom and China Telecom; along with some Internet giants such as Tencent and Alibaba) to begin distributed R 50% of travel subsidies by government departments were granted in the form of digital RMB in Xiangcheng District of Suzhou City; Luohu District, Shenzhen City launched a pilot project of digital RMB, issuing 10 million yuan which could be spent at 3389 different businesses within the district with no threshold on spending. In addition, with regard to CBDC international standards, in January 2020 six central banks set up the CBDC Joint Working Group to promote the arrival of and interoper- ability with CBDC (the banks concerned included the European Central Bank, the Bank of Japan, the Bank of England, the Bank of Canada, the National Bank of Switzerland and the Bank of Sweden); subsequently, the Federal Reserve joined the CBDC Joint Working Group. The CBDC Joint Working Group and BIS jointly released the report Central Bank Digital Currency: Foundational Principles and Core Features, which put forward CHINA ECONOMIC JOURNAL 5the three principles of No harm, Coexistence and Innovation and Efficiency in October 2020. At present, the CBDC Joint Working Group has not allowed a developing country to join, in essence reflecting financial capitalisms attempt to monopolize the emerging field of digital currencies. China is the worlds second largest economy and the largest developing country, at the same time it leads the field to a certain extent in R blockchain as the underlying technology of the clearing and settlement system helps to break the hegemony of the US dollar to a certain extent. 8. CBDC can realize a closer integration of monetary and fiscal policy, to achieve a more efficient macro-policy regulatory system. 9. CBDC can better protect citizens data rights and the security of Chinas data sovereignty. This requirement has become even more urgent after the Fourth Plenary Session of the 19th CPC Central Committee in 2019, which officially proposed the inclusion of data as one of the essential factors of production. 10. In the long-term CBDC may enrich and improve monetary policy. If CBDC interest is calculated, it will create a new price-based monetary policy tool, offering the opportunity to solve issues within the traditional framework such as obstacles in transmission, difficulties in counter-cyclical regulation, currency shifting from virtual to real and failings in management of policy expectations (Yao Qian, 2018; Yao Qian, 2019). In reality, of the reasons to promote CBDC outlined above, there is a clear differentia- tion in the timescales post implementation. Among them, in the short term, points 1 to 6 can play a more immediate role in the aftermath of the launch of CBDC. For example, Chinas cash stock stood at about 7 trillion yuan by 2018, calculating according to an issuance cost of 1%, it is estimated that the issuance cost of this is about 700 billion yuan. After the CBDC is completed, the marginal cost will be almost zero. Moreover, as the speed of CBDC is not lower than that of third-party payment, in the event that the total amount of M0 does not change, it can improve the speed of capital flow, thereby enhancing the central banks monetary position (Wu Tong, Li Jiaqi and Cheng Mengyu, 2020). As another example, CBDC can be based upon an unspent transaction outputs model (UTXO) to achieve full cycle data recording and tracking, improve the effectiveness of monetary policy and improve the ability to control systemic financial risks. These are all policy goals which are relatively easy to achieve in the short term. Whereas, with regard to policy objectives 710, CBDC is merely one of the conditions that help contribute to these goals, the ultimate realization of the objective depends on a variety of factors, such as the issue of internationalizing digital RMB. The internatio- nalization of digital RMB, falling under the scope of internationalizing traditional RMB, increases the complexity of certain factors such as the technology and international standards required; it is a complex problem affected by the interplay of many multi- faceted factors. The level of acceptance of digital RMB by foreign entities, the convert- ibility of Chinas Capital Financial Accounts, Chinas exchange rate setting mechanism, the robustness of the digital RMB system itself as well as the mechanism for liberalization of overseas nodes will all have a significant impact on this issue (Wu Tong 2018). The mechanism of CBDC needs to be established on the principle of technological neutrality with realizing its policy objectives as a benchmark. CHINA ECONOMIC JOURNAL 7In addition to the achievement of policy objectives as a benchmark for the CBDC mechanism, there is also a need to consider how to prevent and control potential risks. Taken together, there are three potential risks to CBDC: fi