Digital renminbi is a central bank digital currency issued by China’s central bank. From money and banking’s perspective, what are the advantages of using digital currency over physical banknotes?

If we look at the properties of money, digital renmenbi is more durable as it is stored on the Internet while physical banknotes may be damaged. Also, digital renmenbi is more portable as it is stored on the Internet regardless of the amount while the face value of a physical renmenbi banknote is at most ¥100.

If we consider from a banking perspective, digital banking can create more deposits through credit creation process since there is no issue of deposit leakage. Since China also adopts fractional reserve system and has a legal reserve ratio of 17%, digital renmenbi allows the bank in China to keep only part of the deposits as reserve and lend the other part out.