The rapid spread of mobile payments has created a whimsy of “no cash society”. China is the world's most widely used mobile payment application and one of the closest countries to “no cash society”. However, relying solely on mobile payment can not meet the changing requirements of the digital financial era, and the concept of “digital currency” with a deeper focus has emerged.
Recently, the relevant person in charge of the People's Bank of China (hereinafter referred to as the central bank) said in public that the digital currency system is under development, and the "digital renminbi era" is coming soon. Why is the central bank launching digital currency? What are the connections and differences between central bank digital currency and online payment and so-called “virtual currency”?
What is the difference between digital currency?
At the 3rd China Finance 40th Yichun Forum held recently, the Deputy Director of the Central Bank's Payment and Settlement Department, Mu Changchun, said that the digital currency research institute under the central bank began the development of the digital currency system as early as 2018. Money has become "out of the box", which has led to widespread debate in the Internet and financial circles.
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The central bank’s research on issuing digital currencies is not a temporary move. It is reported that from 2014 to now, the research on the central bank's digital currency has been carried out for five years. In 2017, the Central Bank Digital Currency Research Institute was formally established. Currently, the firm has applied for 74 patents involving digital currency technology.
In recent years, along with the development of Internet technology, especially blockchain technology, there have been many so-called “virtual currencies” in the world, such as bitcoin and Wright currency, which have been controversial in recent years. So, what is the difference between the digital currency proposed by the central bank and these commercial “virtual currencies”?
From the perspective of currency attributes, “virtual currencies” such as bitcoin are not money in nature. “Virtual currency” is not supported by national credits as the legal currency issued by the state. Its speculative nature is affected by factors such as regulatory tightening and technical problems. Prices often fluctuate greatly and interfere with the normal order of the domestic and global monetary and financial systems. .
From the perspective of the principle of money circulation, in order to ensure the orderly operation and macro-control of the financial system, only the state can exercise the highest power of issuing money. Therefore, the central bank's digital currency is based on national credit, the legal digital currency issued by the central bank, and is essentially different from “virtual currency” such as bitcoin.
Can you really replace cash in circulation?
China's electronic payment is very developed, why should the central bank introduce legal digital currency? "For the common people, the basic payment function is relatively vague between the electronic payment and the central bank's digital currency, but the central bank's future digital currency will be very different from electronic payment in some functions." Mu Changchang said In the past, the transfer of funds from electronic payment instruments must be completed through traditional bank accounts, and the central bank's digital currency can be diverted from traditional bank accounts to achieve value transfer, which greatly reduces the dependence of the transaction links on accounts. In layman's terms, the central bank's digital currency can be easily circulated as cash, which is conducive to the circulation and internationalization of the renminbi, as well as controllable anonymity.
It is understood that the existing cash in circulation is easy to be forged anonymously, and electronic payment instruments such as bank cards and Internet payments cannot fully satisfy the public's demand for anonymous payment. Therefore, the design of the central bank's digital currency is mainly aimed at the substitution of cash in circulation, which not only maintains the attributes and main features of cash, but also meets the demand for portability and anonymity.
Wang Xin, director of the Central Bank Research Bureau and the Monetary and Financial Bureau, said that the central bank's digital currency is mainly a substitute for cash in China, which will help optimize the central bank's monetary payment function and improve the central bank's monetary status and monetary policy effectiveness.
From this point of view, the introduction of digital currency by the central bank is neither a popular e-wallet or online payment, nor a completely “reinvented” replacement of the existing RMB system, but a new and encrypted electronic currency with a certain alternative to circulating cash. system.
Shao Fujun, chairman of China UnionPay Co., Ltd., said that the statutory digital currency of the central bank will have a great positive impact, which will improve the efficiency of currency operation monitoring and enrich monetary policy measures.
It is reported that the central bank's digital currency is mainly used for small-scale retail high-frequency business scenarios. Zhou Xiaochuan, the former president of the central bank, pointed out that studying digital currency is essentially the pursuit of convenience, speed and low cost of the retail payment system.
R&D is in the "horse race" state
In recent years, commercial virtual currency has been controversial, and people are increasingly recognizing that the future development trend of digital currency is based on national credit and legal digital currency issued by central banks.
It is understood that there is currently no central bank in the world to officially launch legal digital currency. Multinational central banks, including the Bank of England, the Bank of Canada and the Swedish central bank, are working on the development of legal digital currencies. The International Monetary Fund said it plans to launch a global digital currency, the International Monetary Fund (IMF), under the SDR mechanism.
At present, China is still in the stage of accelerating research and development in terms of digital currency. For example, the central bank held a video conference for the second half of 2019 on August 2, demanding “accelerating the pace of research and development of legal digital currency in China”. The recently issued "Opinions of the CPC Central Committee and the State Council on Supporting Shenzhen's Pioneering Demonstration Zone with Chinese Characteristics" clearly stated that it "supports innovative applications such as digital currency research and mobile payment in Shenzhen."
It is understood that in the future, the central bank will not issue digital currency directly to the public. Instead, it will adopt a two-tier operating system, that is, the central bank will first convert the digital currency to a bank or other operating agency, and then convert it to the public. The central bank's statutory digital currency will be piloted in some scenarios in the early stage, and will be further promoted after more mature. For the sake of sound consideration, the pilot exit mechanism will be designed.
Mu Changchun revealed that the development of the central bank's digital currency is currently in the state of “horse racing”, and several designated operating agencies have adopted different technical routes for research and development. “It’s not necessarily a blockchain. Any technology can do it. Whether it’s a blockchain or a centralized account system, electronic payments or so-called mobile money, you can take any technical route and the central bank can adapt.”
Source: People's Daily Overseas Edition (08 August 2019, 08th Edition)
Author: Luze Hua