Pick up the Libra challenge, the central bank "fine portrait" digital currency

Source: China Business News Original title: "Take Libra Bank of challenging the" fine portrait of "digital currency" Author: Li Hui

Since the release of the Libra white paper in late June this year, the world has been highly concerned and vigilant because of its ambition to anchor a basket of sovereign currencies for credit support. In the following two months, the People's Bank of China expressed its intensive attitude towards Libra through different forms. Recently, officials of the People's Bank of China publicly stated for the first time that the central bank's digital currency has been “out of the box” and has made the most accurate description of its prototype.

The above progress is considered by public opinion to be a response to Libra's severe challenges and a phased result of the continued promotion of digital currency.

From the perspective of the regulatory response, on the one hand, clear regulatory logic, Libra is regarded as a foreign currency into the overall framework of China's foreign exchange management; on the other hand, the central bank's digital currency is stepped up to seize the right to speak in the digital currency field.

A state-owned big banker who has long been concerned about the central bank's digital currency research told the China Business Journal that Libra's emergence would allow the central bank to open a certain "mouth" to the market-oriented body, which may be the most anticipated in the future. Look at it.

DC/EP sprint

“The research on the Digital Currency/Electronic Payment (Digital Currency/Electronic Payment) has been carried out for five years. Since last year, the relevant personnel have been '996', and system development can be said to come out.” China Mu Changchun, deputy director of the Department of Payment and Settlement of the People's Bank of China, said at the recent "The Third China Financial 40 People Yichun Forum".

From the continuous research and practice of digital currency in recent years, the People's Bank of China can be said to be one of the most active and forward-looking institutions in the global central bank to explore digital currency. Public information shows that the central bank has been conducting research on digital currencies since 2014. In May 2016, the central bank announced that it would establish a financial technology committee to strengthen research planning and coordination of financial technology work. In December 2017, the Digital Money Institute was established.

In fact, earlier on, the central bank's digital currency research has had staged results. The reporter noted that the 17th issue of "China Finance" in the 17th issue of "Central Bank Digital Currency Research and Discussion" reflected the development direction and prototype concept of the digital currency research team of the People's Bank of China. Research findings on key issues such as technology path selection, legal basis, and impact on monetary policy.

The aforementioned state-owned big bankers told reporters that in the early research stage, the central bank's multiple bureaus and even the payment clearing associations participated in this field. The digital currency scheme has several directions, and the decision makers have also undergone the selection process. In the current period of voice, there is indeed a need to deal with Libra.

What is certain is that before the launch of Libra, the central bank had already had directional conclusions about the mode of digital currency. In the fine portrait of Mu Changchun, DC/EP's dual operation mode, centralized management, M0 substitution, etc., in the direction and January 2018, the deputy governor of the People's Bank of China, Fan Yifei, issued a few comments on the central bank's digital currency. "The article kept consistent.

Some notable signals are that from the end of 2017 to 2018, regulation continues to combat the risk of virtual currency ICO, and the market's discussion of digital currencies has cooled significantly, and only around the practice of the underlying technology of the blockchain.

But Libra's emergence has brought some variables – although its architecture and path and usage scenarios are different from CBDC, its ambition to surpass sovereign currency is particularly dazzling in the context of sensitive international relations. According to the aforementioned state-owned big bankers, since the launch of Libra, this discussion on digital currency has obviously restarted, and some people in the currency circle also hope to render on public opinion.

Wang Xin, director of the Research Bureau of the People's Bank of China, also said in his speech at the aforementioned forum:

"Libra anchors the direction of a blue currency. The future is essentially anchoring the dollar. If it is closely related to the dollar, it is not only an economic and financial issue, but even a series of complicated political issues."

Li Yang, chairman of the National Institute of Finance and Development of the Chinese Academy of Social Sciences, pointed out in Libra's analysis that Libra built a system for issuing and distributing a basket of legal tenders such as the US dollar. It is worth noting that in this currency basket composition, the RMB is explicitly excluded. It is this arrangement that highlights its clear position to form a positive competition with various monetary and financial arrangements based on the renminbi.

In response, the central bank also responded quickly. On the one hand, the response strategy is a reaffirmation of the regulatory attitude. Including Mu Changchun and Sun Tianqi, the chief accountant of the State Administration of Foreign Exchange, have stated:

First, Libra is regarded as a foreign currency and must be included in the overall framework of China's foreign exchange management.

Second, in addition to the very few cases stipulated by the state, China's territory must be settled in RMB, and Libraization or dollarization of domestic transactions in the digital environment must not occur.

Third, cross-border financial services must be licensed, and financial licenses must have national boundaries. But Sun Tianqi also said: Libra may become a new driving force for reform and opening up.

Yuan Haoming, CEO of Fire Coin China, said in an interview with reporters:

The functions of the central bank's digital currency, DC/EP and Libra, are not the same. They are not currently competing in the same dimension, but they still have an impact on Libra. DC/EP is highly scalable and does not have a technical route. It is technology neutral and future. There may be a blockchain-based issuance, and it can adapt to the state's regulation of funds. If it can carry out global flows, it can cope with the impact of Libra and the international influence of the RMB.

The impact of the payment system and the route to be clear

Unlike the UK and Switzerland, which are equally active in the development of central bank digital currencies, China's electronic payments, especially mobile payments, are already very developed. Why should digital currency be launched on this basis?

In fact, in the early days when the central bank invested in research and development, there was both a grasp of trends and a response to market challenges.

Cai Kailong, a senior researcher at the Institute of Financial Technology of Renmin University of China, said in an interview:

The central bank's digital currency is an alternative to M0, but it is not a substitute but a parallel relationship with current mobile payments for a long period of time. Traditional payment is more dependent on the account system. There is a barrier to transfer between the electronic wallets of different operators, and the ability to prevent tampering is also weak.

In Yuan Yuming's view, the central bank's digital currency and mobile payment functions are similar from the perspective of small retail payment scenarios and users, but the two are not substitutes: on the one hand, the central bank's digital currency can better carry out currency flows. Control over regulation, on the other hand, can also be transferred from a bank account for value transfer, allowing users to directly conduct anonymous and controllable transactions. From a monetary point of view, the central bank digital currency is a substitute for M0, that is, cash in circulation, and the current mobile payment, the transfer between the two accounts is actually only the value change in the total account of the payer, the funds behind it More inclined to deposits or money funds, is M1, the two are not the same in currency type.

Whether Libra or DC/EP, the most obvious impact is currently estimated to be the impact on existing payment clearing systems. At the Yichun Forum, Shao Fujun, chairman of China UnionPay, expressed this concern. In his view, although the DC/EP two-tier operating system is deterministic, there are also uncertainties under the system:

One model is that blockchain technology covers the entire process of digital currency issuance and circulation, and the transfer of DC/EP transactions is done directly by the blockchain network protocol. In this mode, the payment clearing house will be marginalized.

In another system equivalent to the dual delivery system, the issuing authority DC/EP has its own logo, and the payment clearing institution supports the transfer clearing by modifying the existing network. The similar pattern of Hong Kong dollars is equivalent to the existing bank account. There is one more digital currency account in the system. However, the above-mentioned state-owned big people believe that this approach has the least impact on the existing system, but in essence there is not much new ideas. A person from the research department of the clearing house told reporters that from the business point of view, the payment clearing institution can bring more flexibility to the dual-tiered delivery structure of digital currency; from a technical point of view, the blockchain is not necessarily the best realization of digital currency. technology. In general, payment clearing institutions should not be absent, but there are also variables.

In the discussion of Libra, the current consensus is that it will strike a blow to the internationalization of China's mobile payment giants like Alipay and WeChat Pay – because Libra is a complete design from the bottom to the account to the payment, with its own traffic. , scene, closed loop system. However, if we look back, China Mobile Payments and Internet Oligarchs now have the relevant technical level and closed-loop ecology. Is it possible to play with Libra in a market-oriented manner?

In fact, Ant Financial and Tencent have already expressed their opinions after the emergence of Llibra. The person in charge of the Ant Financial Blockchain business also told reporters in an interview that similar technology is actually used in the cross-border payment of Ant Financial. . The public news shows that Ma Huateng once commented on the WeChat circle of friends that "the technology is mature and not difficult. It depends on whether the regulation is allowed."

However, in Cai Kailong's view: According to the current regulatory framework, the attitude of supervision to the market-based main body is not supported, which is one of the reasons why the central bank accelerated the introduction of the central bank's digital currency. These institutions are all focused on the underlying blockchain technology, so the possibility of launching an organization's digital currency in the short term is minimal.

Che Ning, deputy secretary-general of the Beijing Network Law Research Association, is cautiously optimistic about this: there may be a state in which digital legal currency and digital currency coexist in the future. In his view, whether the Chinese market entity may have Libra-like exploration may be related to three aspects: First, whether the corresponding ability of regulatory technology is in place. Second, whether this “test” will have an impact on the existing ecology. Third, is there a possibility of eroding sovereign currency?

But one background that needs attention is that global technology companies are currently wary of participating in finance. According to foreign media reports, in July this year, a draft US law entitled "Let large technology companies stay away from financial business" was distributed to the House of Representatives. In China, the China Financial Stability Report (2018) also revealed the regulatory thinking of “systemically important financial institutions”. From these backgrounds, the sprint of the central bank's digital currency is also racing against market forces at home and abroad.

The emergence of Libra will take a new approach to the central bank's exploration of market-oriented institutions? Wang Xin mentioned in the aforementioned forum: If we also support our organization and issue a Chinese version of digital currency like Libra, then what should its application be? It is mainly used in the international field, or It can also be widely used in the territory. How does it affect our current RMB?

Is this assumption possible to become a reality? There is still no answer at the moment. After all, for the foreseeable future, digital legal currency and even numerical currency will still coexist with cash for a long time, and new regulatory ideas and policies will be a long-term process. The aforementioned research personnel of the clearing house think that:

In the alternative cash or even mobile payment, the current form of electronic payment is very mature and market-oriented. Is anonymous a hard demand for consumers? At least for now, the possibility of large-scale substitution is not seen.