Li Lihui, former president of Bank of China: Digital currency, another restructuring of the monetary system

Source: Sina Finance

Editor's Note: The original title is "Li Lihui: Digital Currency, Another Reconstruction of the Monetary System"

Sina Finance News "2019 Financial Reform and Innovation Advanced Forum and Peking University Cao Fengqi Financial Development Fund Eighth Awards Ceremony" was held in Beijing on October 19. Li Yuanhui, former president of the Bank of China and member of the NPC Financial and Economic Committee, attended and delivered a speech.

Li Lihui believes that digital currency will reconstruct the financial model and the existing economic system. This is a future challenge and opportunity. For the challenge that digital currency may pose to the existing monetary system, he sums it up in three ways.

First, digital currency can cross the central bank and establish national sovereignty. Li Lihui believes that digital currency can cross commercial banks and become a super-sovereign digital currency, impacting some weak and sovereign currency. Especially in some small and weak countries, his own legal currency may not be trusted by citizens. At this time, the number of trustworthy institutions and the inability to either super-sovereign digital currency may be replaced.

Second, it is the hegemonic status of repeating money. If we permit the issuance of such super-sovereign currency, there will be 3-4 super-sovereign currencies in the world after 10 years. These super-sovereign currencies no longer have clear country labels. .

Third, digital currency will form a financial system that spans commercial banks. It may start with payments, enter savings, enter investments, enter financing and insurance and asset management, and it may be intended to replace current financial institutions. Finally, if our renminbi cannot be included in the super-sovereign digital currency system, we will also face the challenges of future RMB internationalization.

The following is a record of the speech:

Li Lihui: As the digital currency has developed to the present, I feel that I have a problem and need to study whether it will reconstruct our monetary system. I have briefly listed some changes in the Bretton Woods system. From the establishment of this system from 1944 to its end, and the hegemonic system of the dollar has not ended, will the dollar currency produce some currency. This is worth discussing and studying.

I am here to divide the currency into three levels, the first is the legal tender, the second is the digital currency, and the third is the digital currency that I call another digital currency a trustworthy institution.

We call the digital currency with legal status and legal endorsement and issue subject the national digital currency. We started the research on digital currency from 2015, but since we have been studying some issues, China has not introduced the central bank’s statutory Digital currency.

From now on, our digital currency may be called digital currency and electronic payment, so our digital currency probably has several characteristics. The first is to adopt a two-layer inheritance indirect distribution model. We must study in which aspects it is inherited. , which aspects are alternatives. In the traditional currency issuance mechanism, money is indirectly invented and issued by commercial banks, but digital currency has the function of direct invention, that is, the central bank does not directly issue digital currency through commercial banks. But in this case, a large number of commercial bank deposits will flow into the central bank, which will affect the ability of commercial banks and commercial financial institutions to credit, and will also disrupt existing currency issuers.

Therefore, the central bank's current two-tier operation delivery system is the inheritance of the traditional currency issuance system. The advantage is that it can be more stable. He does not have to look forward to it, and he does not have to introduce new ideas. However, such a distribution method will not lag behind. This is what we need to further discuss.

In addition, the current legal digital currency in China adopts a parallel technical route. There is such a hypothesis that they believe that the current blockchain technology cannot meet the high-volume requirements of our huge market, so we must maintain technology at present. Neutral, not simply relying on a single technology, such as the technology of blockchain.

They believe that we can use the horse racing mechanism to compete in the technical route, and designate different institutions to adopt different technical routes for further research and development of legal digital currency. Of course, such institutions understand that it is basically the central bank investment and central bank management. They hope that such technology competition and market selection of legal digital currency technology optimization, the central bank's digital currency may adopt centralization in the future, the purpose is to ensure the reliability of the currency transmission mechanism, ensure the efficiency of currency regulation, and prevent the financial institutions from exceeding the currency. hair. In the blockchain we are talking about, smart contracts are a very low-level technology. The central bank has always been cautious about smart contracts. From the current disclosure, they may support the use of smart contracts that are conducive to the realization of monetary functions. .

The third is to replace the M0 of the currency by loosely coupling the account. Everyone here today has WeChat payment and Alipay, an emerging electronic payment tool that is tightly coupled to the account, that is, all of our payments are tied to WeChat and Alipay. Of course, WeChat payment also has a wallet, but it does not have a major position. Now the digital currency designed by the central bank is a way of using account loosening and account wallet, which can be separated from bank account restrictions, achieve end-to-end transfer, and achieve controlled and anonymous payments within the scope permitted by the central bank. First, it can be off-network, and second, it can be controlled and anonymous. The first off-network operation, we do not have a network, how to carry out certification between the credit, I think we need further research.

In addition, the legal digital currency we are designing now is based on the replacement of M0, instead of replacing M1 and M2. This is based on the judgment of our experts and officials on the current M0, M1, M2 currency market and the forecast of future demand. Whether this design of the design is reasonable, we can also study further.

Our China WeChat and Alipay have done very mature, one billion, and not only in China, but also in other countries, Alipay and WeChat payment are very popular, and the introduction of the French currency digital currency and the central bank’s digital currency will not To replace things like WeChat and Alipay, I think it depends on three key factors, the first is efficiency, the second is cost, and the third is the market size with economic value. This is my view on the central bank's digital currency.

Then let's take a quick look at virtual currency. I think that as far as the basics of monetary studies I have learned, I think that something like Bitcoin exists in the virtual community. It is an incentive tool for virtual communities. At the same time, it can be simplified with the real legal currency, so we call it virtual currency, which is better than what cryptocurrency it is.

How do we identify virtual currency? We should not identify virtual currency as the real legal currency, but it can grow. First, its living soil is in the community of the decentralized structure of the public chain. It is an economic tool and also Incentive tools also have a value base. Second, it has market demand. There is a big dark net market in the world. There are many porn trades and gun trades in the dark net market. Dark nets need to be traded underground, and the ground is difficult to control. Virtual currency meets such requirements. In addition, virtual currency is speculative. 40% of Bitcoin is concentrated in 1000 accounts. Based on the key minority at the top of the market, they have the ability to control the market, so speculation is too heavy. It is the existence of these virtual currencies. Big problem.

For example, in the last year, the highest price of Bitcoin was 20,000 US dollars, and the lowest time was 3,000 US dollars. Its turmoil is too big, which is a big problem in its economic value.

In addition, in the community where the virtual currency is looking for a public chain, there is a big problem in this community. It has a technical problem, that is, a large amount of data storage requires space, and a high-speed network is required. In such a case, they are difficult. To achieve high speed, I think virtual currency is still difficult to become a large-scale thing in the future. But it will also survive and develop. A very small number of virtual currencies will expand the territory, and most of them serve a small group of people.

In the future, blockchain virtual currency can break through a certain scale bottleneck, and the virtual currency operation mechanism can break through the value stability, so that virtual currency will enter the field of mass application, but it will be difficult to see in the next three to five years.

I refer to the digital currency issued by a trusted financial institution as the digital currency of a trusted institution. Because of the legal digital currency, because the legal status and national sovereign endorsement are trustworthy, the digital currency of any other institution must be trusted. There are five basic conditions: the first is the endorsement of trust by the public trust institution, the second is the size of the customer with commercial value, the third is the efficient and reliable financial transaction and payment platform, and the fourth is supported by auditable financial assets. The last important market access with administrative licensing. Then we all see Libra coming out on June 18th this year. Its design is very delicate, indicating its intention. It wants to become a global financial infrastructure in the fair world, but at present it faces some regulatory aspects. The challenge was that on October 14, before their association held its first council, six payment agencies withdrew from Libra, and now its founding organization has been reduced from 28 to 21.

As far as I know, organizations like Visa are under pressure from financial institutions and have withdrawn. Now only one European financial institution has not withdrawn. Let us see what he wants to do. First, it covers a huge customer base, second. He uses digital technology to build an independent financial infrastructure. Third, he uses hard assets to support the operation of assets.

Why does this thing make Americans so vigilant? If it appears that he may pose an unprecedented challenge to the existing monetary system, I will summarize three aspects. First, it can cross the central bank and establish national sovereignty. It can cross commercial banks, which is a super-sovereign digital currency, which can impact the status of some weak and small sovereign currency. Especially in some small and weak countries, his own legal currency may not be trusted by citizens. At this time, the number of trustworthy institutions and the inability to either super-sovereign digital currency may be replaced. The second is the hegemonic status of the repeating currency. If we permit the issuance of such super-sovereign currency, there will be 3-4 super-sovereign currencies in the world after the next 10 years. These super-sovereign currencies no longer have clear national labels.

Third, it will form a financial system that spans commercial banks. They will start with payments, enter savings, enter investment, enter financing and insurance and asset management, and it may be intended to replace current financial institutions. Finally, if our renminbi cannot be included in the super-sovereign digital currency system, we will also face the challenges of future RMB internationalization.

In this case, I think the digital currency will reconstruct our financial model and the current economic system. This is a future challenge and opportunity.

However, since I understand the attitude of our Chinese government and the People's Bank of China, it is unlikely that this super-sovereign currency will operate in China. Even so, we should actively encourage and support financial innovation and master digital technology. The dominance of the economy, especially in China, we should study the feasibility and practical programs of China-led, even the super-sovereign digital currency dominated by Chinese financial institutions. Second, we must promote the reform of the regulatory system and accelerate the construction of financial infrastructure. We still have many shortcomings in this area, including the regulation of virtual currency, and may supervise the sovereign currency. There are still many shortcomings in this system.

Moreover, in terms of digital finance, we have not yet perfected the authoritative national technical standards and the national-level professional verification system. These are all we need to work hard. The question about China’s legal digital currency is whether it is tight or loose. Coupling, the possibility of off-grid operation, is to replace M0, or M1, or M2, are the problems we need to solve.

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