Xiao Lei: The central bank’s digital currency has a clear target, but underestimates the American thinking.

Article source: Xiao Lei sees the city (WeChat public number) Original title: "Xiao Lei: The central bank's digital currency target is clear, but underestimated the American thinking"

At a financial elite forum on August 10, 2019, Mu Changchun, deputy director of the central bank's payment and settlement division, once again elaborated on the specific progress of the central bank's digital currency research and development and the final form of its future.

From the specific information transmitted, it is all-round, but many are still written languages. I am here to explain the key points in the vernacular. There are actually many important information that are inadvertently revealed.

The first is that, under certain stimulus, the central bank has worked overtime in the past year to engage in digital currency.

According to Mu Changchun, the study of the central bank's digital currency DC/EP began in 2014 and has been going on for five years. The first four years did not seem to be very anxious, but since last year, I have been irritated by the whole R&D team. I started working overtime and worked hard from 9:00 am to 9:00 pm every day, and I only had one day off a week. At this point, the development of related systems can be said to have reached the point where it is ready, as long as the banking system can support it. , you can push it.

What the central bank got a stimulus a year ago is not known at the moment, but I looked at what happened a year ago, between June and August last year, and might find some clues.

In June last year, the United States began to impose tariffs on Chinese exports to the United States for the first time. Sino-US trade frictions warmed up, the RMB exchange rate went down, and the demand for digital currency in the domestic market increased. The country began to rectify from the public opinion level, including the CCTV financial production theme. The messy market is chaotic, the Internet Office has a number of self-media labels, and five ministries have issued risk warnings. In June last year, the China Central Bank Digital Currency Research Institute announced four patent applications within one month. By September of last year, the central bank had applied for a total of 49 legal digital currency patents.

That is to say, starting from June last year, China has strengthened its control from two levels. One is the guidance and control of the digital currency by the public opinion level, and the other is to build confidence from the central bank on the official digital currency of China. When it was pointed out that it was required to speed up the pace of research and development of legal digital currency, it was only after Mu Changchun said that the "996" working mode of the past year.

The second is that the central bank has, to some extent, acknowledged the legal existence of Bitcoin and Ethereum.

Mu Changchun said that when the double eleven was last year, the peak value of the online transaction reached 92,771 pens/second. In comparison, bitcoin is 7 pens per second, and Ethereum is 10 to 20 pens per second, according to Libra’s White paper, 1000 pens per second.

This sentence inadvertently revealed an important message. When the central bank quoted Bitcoin and Ethereum, there was no concern. It said that Bitcoin and Ethereum did not explain anything. This shows that from the central bank level, Recognizing the objective existence and rationality of Bitcoin, Ethereum and future Libra, it may have been defined as a competitor of the central bank's digital currency, which is the object of research and implementation of the central bank's digital currency.

This is similar to the history. When pursuing a sovereign credit currency, it must be enforced not only from the legal level, but also from theoretical research and academic output. It is also clear why banknotes replace gold and silver. The first thing to advertise is that gold and silver are the currencies that cannot meet the trade needs of modern society. In the face of banknotes, gold and silver have fatal flaws, one is limited in quantity, and the other is incapable of achieving high concurrency. Please note that this is not demeaning gold and silver, on the contrary, it is the banknotes that value the competition.

As long as countries implement the official digital currency, one of the arguments is that Bitcoin and Ethereum have low concurrency and cannot meet the needs of human trade and settlement payments. At the same time, they also acknowledge a problem. Bitcoin and Ethereum will be the central bank’s digital currency. Long-term competitors. Just like gold and silver, from time to time, it will respond to the decline in banknote credit in the form of price increases.

The third is that the digital currency issued by the central bank has no room for speculation, but it has some special features.

According to Mu Changchun, the two-tier structure adopted by the central bank's digital currency is actually the central bank plus commercial banks. The real issuer is a commercial bank, but commercial banks need 100% preparation for the blonde. In fact, it is equivalent to issuing. A "stable currency" based on the renminbi.

According to the current design, the way people get the central bank's digital currency is roughly divided into three categories. The first type is to open a wallet of digital currency to the bank, and directly hold the cash in hand, including banknotes and coins, and exchange it into digital currency. The second type is to take the money directly from the existing account and use online banking to purchase it, similar to transferring the money in the bank account to Alipay or WeChat payment (online processing); the third is directly on the off-exchange transaction. I transferred it to you, you transferred it to me, or I have something to sell, clearly only digital currency.

In terms of payment, there may be three forms of payment in China in the future, online banking, third-party payment (Alipay, WeChat payment, etc.), official digital currency, then everyone should consider whether you are putting money in online banking or a third party. In the payment, it is still in the account of the digital currency.

In online banking, there is interest on deposits. In third-party payment accounts, you can buy money funds, etc., and the interest is relatively high, but there is no interest in digital currency (you also have no interest on holding paper money and coins).

So what are the advantages of digital currency? Due to the different operational logic, the main attribute is the replacement of M0, which is the replacement of banknotes and coins on the market, so the privacy is higher than online banking and third-party payment accounts. To put it bluntly, as long as you don't violate the three anti-money laundering (anti-money laundering, anti-terrorism financing, anti-tax evasion), as to who you are transferring this money, just like who you give the cash privately, you don't say, the other party does not say, No one knows.

Inside, I don't know how to gain public trust. After all, once digitized, it is unlikely to have higher privacy attributes like cash. Without decentralization guarantees, how to establish this trust mechanism is a challenge.

Of course, the central bank is still very smart, kicking the ball of building public trust to commercial banks and various development agencies. Mu Changchun said, "We also talked at the beginning. The two-tier operation system is conducive to fully mobilizing market forces and optimizing the system through competition. At present, we belong to a horse racing state, and several designated operators adopt different technologies. The route is DC/EP research and development, who has a good route, who will eventually be accepted by the people and accepted by the market, who will win the game. So this is the process of market competition."

The fourth is that I personally predict that the central bank's digital currency may be difficult to achieve the expected results.

Judging from the existing information, no matter how many goals the central bank's digital currency has designed, it is actually a process of eliminating cash. But the problem is that without digital currency, cash will gradually disappear. This is a historical trend. Otherwise, why should we specifically issue documents to punish those who do not accept cash? The de-cashing of the Chinese market will be faster and faster, and Mu Changchun also said that for the common people, the basic payment function between the electronic payment and the central bank digital currency is actually relatively vague.

In addition, the central bank's digital currency is mainly intended for small-scale retail scenarios. It does not have an extrusion effect on deposits. It can avoid the “Yuebao” type of deposit moving, and set transaction limits and balance limits for different levels of wallets.

I want to give the central bank a suggestion here. The current design of digital currency, it is best not to consider the issue of competition with M2 and M1, because the real competitor of the central bank digital currency is not M2, M1, but many future international markets. Digital currency, including the digital currency based on US dollar credit that has sprouted in the US market. If the domestic people are not willing to exchange their M1 and M2 for digital currency, what motivation does the international market have for China's digital currency? How can we promote internationalization?

Let me give you an example that everyone knows well. In 1944, the United States led the establishment of the Brighton Forest System. The US dollar was linked to gold. The currencies of other countries were linked to the US dollar. As long as other countries have US dollars, they can exchange gold for the United States, but the Americans themselves. The US dollar cannot be exchanged for gold. The United States prohibits private holding of gold. This guarantees that gold will not have a crowding effect on the US dollar in the United States. The international market only knows that it can be exchanged for gold after holding the US dollar, so the road to internationalization. Finish quickly.

By the same token, if the digital currency issued by China is only for the international market, the domestic ban is circulated, not only with M0 and relative decentralized design as credit endorsement, but also using gold reserves as credit secondary credit endorsement, without worrying about deposits. The crowding out effect (just like in China, there are still many people who want to exchange dollars, but they can change very limited), and even allow the international market to speculate on prices, then China will create an international currency with higher credit value. This will compete with the digital currency issued by Facebook and others.

If it is only to curb the demand of domestic users for bitcoin, Ethereum and other digital currencies, it proves that the central bank keeps pace with the times, masters the dominance of digital currency R&D, and then it is very complicated and professional, and it has gathered many financial institutions, but The result is simply digitizing M0. The final possibility is that after consuming huge financial resources, the effect is very general, but it brings confusion to China's leading global electronic payment field.

In designing the official digital currency, the People's Bank of China must not lose because of smallness. If you stare at the domestic people every day, the effect will be counterproductive. In the future, people will try their best to change the Libra, JP Morgan, Wal-Mart and other US dollars. Stabilize the currency, not the official Chinese digital currency.