Huang Qifan: China's central bank may be the world's first central bank to launch digital currency (with full speech)

Author: Tencent News "front-line" Jose

Source: Tencent News

Huang Qifan, Vice Chairman of China International Economic Exchange Center

“The People’s Bank of China has been studying DC/EP for five or six years, and I think it has matured. The People’s Bank of China is probably the first central bank in the world to launch digital currency.”

On October 28, Huang Qifan, vice chairman of China International Economic Exchange Center, said at the first Bund Financial Summit that the digital currency launched by the People's Bank of China is a new encrypted electronic money system based on blockchain technology, which will adopt a two-tier operating system. That is, the People's Bank first exchanges DCEPs with banks or other financial institutions, which are then redeemed to the public. The significance of DCEP is that it is not a digitization of the existing currency, but an alternative to M0. It makes the transaction link greatly reduced to the account, which is conducive to the circulation and internationalization of the RMB. At the same time, DCEP can realize real-time collection of data such as currency creation, accounting, and flow, and provide useful reference for the formulation of money and the formulation and implementation of monetary policy.

Prior to August, the Deputy Director of the Central Bank's Payments Division, Mu Changchun, elaborated on the central bank's digital currency technology roadmap. He explained that the reason why the central bank's digital currency adopts a two-tier operating system is because "this kind of delivery system is suitable for China's national conditions, and it can not only use existing resources to mobilize the enthusiasm of commercial banks, but also smoothly improve the acceptance of digital currency."

For monetary policy, Mu Changchun said that the two-tier operating system will not change the currency debt and debt relationship in circulation. To ensure that the central bank's digital currency is not over-represented, commercial institutions will pay the central bank a full amount, 100% of the reserve, and the central bank's digital currency. It is still the central bank's debt, which is guaranteed by the central bank's credit and has unlimited legal liability. In addition, the two-tier operating system will not change the existing money delivery system and the dual account structure, and will not compete with the commercial bank deposit currency. Since it does not affect the existing monetary policy transmission mechanism, it will not strengthen the procyclical effect under the pressure environment, and thus will not have a negative impact on the real economy. In addition, the adoption of a two-tier system for distribution to the central bank's legal digital currency is also conducive to curbing public demand for cryptographic assets and consolidating China's monetary sovereignty.

“It is important to emphasize that under the two-tier operating system arrangement, we must still adhere to a centralized management model.” Mu Changchun said that the natural attribute of encrypted assets is decentralization, but the central bank’s digital currency must adhere to a centralized management model. The reason is that, first, the central bank's digital currency is still the central bank's debt to the public, and this creditor-debt relationship has not changed with the change in currency patterns. Therefore, it is still necessary to ensure the central position of the central bank in the delivery process. Second, in order to ensure and strengthen the macro-prudential and monetary regulation functions of the central bank, it is necessary to continue to adhere to a centralized management model. Third, the second layer specifies the operating agency to exchange currency, and centralizes the management to avoid over-issuing the currency of the designated operating agency. Finally, since the dual account system has not been changed throughout the redemption process, the original monetary policy transmission method should be maintained, which also needs to maintain the central bank's central management status.

In addition, the current central bank digital currency design focuses on M0 replacement instead of M1 and M2 replacement. “The existing M0 (banknotes and coins) are easy to be forged anonymously, and there are risks for money laundering, terrorist financing, etc. In addition, electronic payment tools, such as bank cards and Internet payments, are based on the tight coupling model of existing bank accounts, and the public is anonymous. The demand for payment cannot be fully satisfied, so the electronic payment tool can not completely replace M0. The design of the central bank digital currency maintains the attributes and main features of the cash, and also meets the needs of portable and anonymous, and is a better tool to replace the cash. ”

The following is the full text of the speech:

Digital reshaping the global financial ecology

——Speech at the 2019 Bund Financial Summit

(Huang Qifan, October 28, 2019)

Distinguished guests, friends:

I am very happy to be invited to participate in the 2019 Bund Financial Summit. Today I talk about my understanding of digitalization and how digitalization can subvert the global financial ecology.

First, the composition and subversive role of digital

Digitalization mainly includes big data, cloud computing, artificial intelligence, and blockchain technology. And the relationship between these people, if the digital platform is used to analogy: the Internet, the mobile Internet and the Internet of Things are like the human nervous system, big data is like the internal organs, skin and organs, cloud computing is equivalent to the human body. The backbone. Without the network, the internal organs and the backbone can't cooperate with each other; without cloud computing, the internal organs can't hang up; without big data, the cloud computing is the walking dead and hollow. With the nervous system, the spine, the internal organs, the skin and the organs, plus the artificial intelligence of the soul – the human brain and the nerve ending system, the basic digital platform has been formed. Blockchain technology, like the more advanced "genetic transformation technology", greatly enhances brain response speed, bone robustness, and limb manipulation flexibility from the basic level. With the help of blockchain technology, the digital platform will be transformed subversively, which will have a stronger driving force for the economy and society.

The reason why digital can subvert the tradition lies in its five genes: full airspace, full process, full scene, full resolution and full value. The so-called "full airspace" means: breaking regional and spatial barriers, from heaven to earth, from the ground to the underwater, from the domestic to the international can be ubiquitously integrated; the so-called "full process" means: related to all human production Every point in the life process, the information is accumulated 24 hours a day. The so-called "full scene" means: across the industry sector, all the behavioral scenes of all human beings and work are opened; the so-called "full resolution" means : Through the collection, analysis and judgment of artificial intelligence (AI), predicting all human behavior information, resulting in new cognitive, new behavior and new value different from traditional; the so-called "full value" refers to: breaking the single value system Closed, penetrates all value systems, and integrates and creates an unprecedented value chain.

The combination of the five-gene gene with digitization and any traditional industrial chain will form a new economic organization, which will have a subversive impact on traditional industries. When combined with industrial manufacturing, industrial manufacturing 4.0 is formed; combined with the logistics industry, an intelligent logistics system is formed; combined with urban management, a smart city is formed; and with finance, financial technology or technology finance is formed. In the process of combining with finance, the massive information, computing power and consensus mechanism possessed by digitalization can greatly improve the efficiency and security of financial services and reduce the operating costs, bad debts and risks of financial institutions.

Second, the transformation brought by the combination of digitalization and finance

After the collision of the five-gene genes owned by digitalization and finance, it has reshaped the global financial ecology. Mainly reflected in the following four aspects.

(1) Subverting global personal payment methods

Before the advent of the digital wave, personal payment in China was mainly done through banknotes, savings cards, and credit cards. In 2002, on the basis of the merger of the National Bank Card Information Exchange Center and 18 city (regional) bank card network service sub-centers, China Union established the UnionPay company. After the establishment of UnionPay, it independently established a bank card interbank transaction clearing system, promoted the unified RMB bank card standard, and developed rapidly in the traditional payment field, which promoted continuous economic and social progress. However, progress has been slow in innovative payment areas such as Internet payment, mobile payment, and QR code payment.

With the advancement of technology and application in the field of mobile Internet in China, mobile phone-based payment methods have entered every corner of life, and new payments have taken the mainstream. Mobile payments represented by Alipay and WeChat payment have covered 1.4 billion people. From online to offline, from the daily water and electricity bills of the family to transportation, travel, hotels, restaurants, mobile payment, with its efficient and convenient payment experience, breaks the limitations of traditional payment methods in space and time. In 2018, China Mobile paid about US$39 trillion, compared with US$180 billion in the US, and the gap was hundreds of times. China's electronic payment system has been leading the world. Today, there are mobile payments in places where there are Chinese. In the offline merchant stores in dozens of countries and regions in Europe, America, Japan, South Korea, Southeast Asia, etc., Alipay and WeChat payment can cover almost all kinds of eating, drinking and drinking scenes such as restaurants, supermarkets, convenience stores, theme parks and leisure.

Mobile payment makes personal fund-raising information settle down into credit data, which makes the enterprise have great innovation in the business level – separation of ownership and use rights. This is the basis for the sharing and development of shared formats such as shared bicycles and shared office. When an enterprise sells goods or services, it no longer needs to sell the ownership, but only needs to sell the right to use it at a certain time. In the future, shared forms of shared furniture, shared tools, and shared intelligence will be ushered in with greater development opportunities with the help of mobile payments.

With the gradual penetration of blockchain technology in the financial sector, the underlying technology implementation of individual cross-border transfers has also begun to be rewritten. In the past, personal cross-border transfers required cross-payment agencies, banks, and international settlement networks, and the entire process was inefficient due to serial processing. Now, blockchain technology can be used as an interface technology between payment institutions and commercial banks. Multi-party cross-border remittances transmit remittance messages to the participating parties through blockchain technology, thereby achieving multi-party collaborative information processing, parallelizing serial processing between the original organizations, and improving information transmission and processing efficiency.

However, while the new payment methods are developing at a high speed, we must also respect the selectivity of people's payment methods. With the popularity of mobile payments, some merchants have become keen on “no cash” and the phenomenon of rejecting cash has increased. According to the "Regulations on the Administration of Renminbi of the People's Republic of China", no unit or individual may refuse to accept RMB in the form of format clauses, notices, statements, notices, etc. The act of rejecting cash not only harms the legitimate rights and interests of consumers, but also jeopardizes financial security in the long run. At the same time, because mobile payment is based on power facilities, data centers, and network systems, once an accident such as an earthquake, power outage, or man-made disaster causes mobile payment to be unusable, it will have serious consequences for society.

(2) Reshaping the trade settlement system

In the digital age, not only does it need to change the way individuals pay, but the payment and settlement methods between enterprises and countries also need to be reshaped. When conducting foreign exchange settlement in international trade, enterprises will face the problem of direct payment settlement between the two countries' currencies, or whether the US dollar is used as the intermediate price. Prior to the launch of the RMB Cross-Border Payment System (CIPS), RMB cross-border liquidation was highly dependent on the US SWIFT (Global Interbank Financial Telecommunication Association) system and CHIPS (NYSE Bank Interbank Payment System). Founded in 1973, SWIFT provides secure message exchange services and interface software for financial institutions, covering more than 200 countries and has nearly 10,000 direct and indirect members. The current settlement of SWIFT system reaches 5 trillion to 6 trillion US dollars. The annual settlement amount is about 2,000 trillion US dollars. CHIPS is one of the world's largest private payment clearing systems. It was established in 1970 and is operated by the New York Clearing House Association. It is mainly responsible for the liquidation of multinational dollar transactions and deals with more than 90% of the global dollar transactions worldwide. SWIFT and CHIPS bring together most of the world's banks to promote the development of world trade, accelerate global currency circulation and international financial settlement, and promote the modernization and standardization of international financial services with its efficient, reliable, low-cost and perfect services. Played a positive role.

However, there are certain risks associated with a high degree of reliance on SWIFT and CHIPS systems. First of all, SWIFT and CHIPS are gradually becoming the financial instruments for the United States to exercise global hegemony and carry out long-arm jurisdiction. Historically, the United States has launched several financial wars with the help of the SWIFT and CHIPS systems. In 2006, the US Treasury Department analyzed the SWIFT and CHIPS databases and found that European commercial banks had capital exchanges with Iran. The United States immediately used the financing of terrorism as an excuse to require more than 100 European banks to freeze the funds of Iranian customers and threatened to Banks that provide financial services to Iran are blacklisted. Subsequently, most of the world's banks cut off all business dealings with Iranian financial institutions, and Iran's external financial channels were almost completely cut off. In the Ukrainian crisis in 2014, the United States, in addition to joining Saudi Arabia in the price of oil, threatened to exclude Russia from the SWIFT system. The Russian ruble then depreciated sharply and the economy was seriously negatively affected. Second, SWIFT is an outdated, inefficient, and costly payment system. Since its establishment 46 years ago, SWIFT has been slow to update and its efficiency has been relatively low. International wire transfers usually take 3-5 business days to arrive. Large remittances usually require paper documents, making it difficult to effectively handle large-scale transactions. At the same time, SWIFT usually charges a fee of one ten-thousandth of the settlement amount, and has obtained huge profits by virtue of the monopoly platform.

Therefore, under the current trend of digitalization, there is no future for SWIFT and CHIPS systems that rely on slow technology updates and difficult security. Driven by big data platform and blockchain technology, building a new clearing settlement network has become the consensus of many countries. Blockchain technology has five characteristics: decentralization, information not tampering, collective maintenance, reliable database, and openness and transparency. It has the natural advantages of transparency, security and credibility in clearing settlement. At present, 24 national governments have invested in and built distributed accounting systems, and more than 90 multinational companies have joined different blockchain alliances. The European Union, Japan, Russia and other countries are studying the construction of an international cryptocurrency payment network similar to SWIFT to replace SWIFT. More and more financial institutions and blockchain platforms are testing cross-border payments through blockchains, bypassing actual actions. SWIFT and CHIPS global payment system.

(3) Reforming the global currency issuance mechanism

Currency is an indispensable medium for social relations and exchanges between countries and countries, regions and regions, and between people. The primitive society has no money, and it is exchanged through scarce substances such as fur and shells, but the medium of exchange has never been unified, which restricts the development of productivity. The agricultural society began to use precious metals such as gold, silver or copper coins as currency intermediaries. After the industrial society, the value of commodities is getting larger and larger, and it is difficult to carry a huge transaction scale with precious metals such as gold as the currency, and banknotes will appear. In the 1980s, the electronicization of money became more and more developed, and electronic wallets, credit cards, vouchers, and mobile phone payments developed rapidly. Today, digital currency represented by Bitcoin, Libra, and central bank digital currency has begun to appear, and the currency has ushered in the digital age.

So what is the basis of currency issuance? In the past, the currency relied on precious metals such as gold and silver as anchors. After the collapse of the Bretton Woods system in the 1970s, the foundation of currency issuance became a national credit linked to national sovereignty, GDP, and fiscal revenue. With a strong military and economic power, the United States has monopolized the global oil dollar settlement and most international trade settlements through the US dollar, and the US dollar has become the de facto "global currency."

However, the currency that relies on sovereign credit is also facing problems such as currency overshoot. Before the Bretton Woods system was disintegrated in 1970, the global base currency (the central bank's total assets) was less than $100 billion; in 1980, it was about $350 billion; in 1990, that number was about $700 billion; In 2000, this figure was about $1.5 trillion; in 2008, that number became $4 trillion; by the end of 2017, that figure was $21 trillion. In particular, in the past 10 years, in order to get rid of the financial crisis, the United States has stimulated economic development by issuing money through national debt. As a result, the total amount of government debt has risen from 9 trillion US dollars in 2007 to 22 trillion US dollars in 2019, which has exceeded the US GDP. If US debt continues to rise, debts and interest consumption are full of fiscal revenue, the United States does not have credit to re-issuance bonds, financing capacity will be weakened, and a new global financial crisis will be inevitable.

How to change the situation of currency overshoot? After the collapse of the gold standard, countries around the world have not solved this problem very well. Although some scholars have called for a return to the gold standard, it is not realistic to return to the gold standard due to gold reserves. In the digital age, some companies try to challenge sovereign currency by issuing bitcoin and Libra. This decentralized currency based on blockchain is separated from sovereign credit. The issue base cannot be guaranteed, the value of the currency cannot be stabilized, and it is difficult to form social wealth. I don't believe Libra will succeed. For sovereign states, the best way to practice the distribution rights of monetary countries is to issue sovereign digital currencies by the government and the central bank. In the process of issuing sovereign digital currency by the global central bank, in addition to improving convenience and security, it is necessary to formulate a new rule that enables digital currency to be linked to sovereign credit, with national GDP, fiscal revenue, and gold. Reserves establish appropriate proportional relationships and, through some mechanism, curb the situation of spamming.

At present, the digital currency (DCEP) launched by China's central bank is a new encrypted electronic money system based on blockchain technology. DCEP will adopt a two-tier operating system, that is, the People's Bank will first convert DCEP to banks or other financial institutions, which will then be redeemed to the public. The significance of DCEP is that it is not a digitization of the existing currency, but an alternative to M0. It makes the transaction link greatly reduced to the account, which is conducive to the circulation and internationalization of the RMB. At the same time, DCEP can realize real-time collection of data such as currency creation, accounting, and flow, and provide useful reference for the formulation of money and the formulation and implementation of monetary policy. The People's Bank of China has been studying DCEP for five or six years, and I think it has matured. The People's Bank of China is likely to be the first central bank in the world to introduce digital currency.

(4) Improve the efficiency of industrial chain operation

In the 5G era, in addition to consumer electronics such as mobile phones, tablets, and notebook computers, smart homes, automobiles, and industrial manufacturing equipment can be intelligent and connected to the Internet. The digital platform will further evolve into the Internet of Everything platform, which will drive the human Internet industry to evolve from the To-C consumer Internet to the To-B industrial Internet. Among them, technology finance can connect data platform, financial enterprise, upstream and downstream of the industrial chain to help all parties optimize resource allocation, improve operational efficiency and reduce operating costs.

There are two forms of development of technology finance. One is “Internet + Finance”, a conditional digital platform company that builds non-bank financial institutions around its own industrial chain and independently develops financial business. The other is “finance + internet”, and financial enterprises build digital platforms based on the needs of industrial chain development. In the past few years, the economy has been somewhat faltering. Many industrial and commercial enterprises and non-financial companies are keen to cross-border operations and apply for various types of financial licenses. Various financial institutions are keen on grouping and full licenses, so that financial industry leverages and risks accumulate. Chaos is like a cluster. At present, the financial industry is de-leveraging, anti-risk, and strengthening the asset management business and cross-border business rectification under the new situation.

In the future, where is the way out for non-bank financial institutions under the digital platform? I think the most reasonable and promising model is the organic combination of digital platforms and various financial institutions to form a digital financial system. All kinds of institutions are doing their best and each has its own strengths. The digital platform connects upstream and downstream enterprises in the industrial chain and masters real trading information. It can cooperate with various financial institutions to provide financial services such as financing, trade and asset trading for thousands of raw materials, processing and distribution companies in the supply chain. In this process, as long as the digital platform controls the source of funds and the leverage ratio, it can greatly reduce the risk, obtain a reasonable profit, and effectively play the inclusive financial function.

Finally, I will briefly summarize what we are sharing today with you: The modern era is a digital era, the technological innovation and the full rise of the digital economy, transforming technology from the initial tool role into the backbone of driving financial change. The digital five-legged gene and the financial industry continue to collide and merge, which not only changes the settlement method and the sovereign currency issuance mechanism among individuals, enterprises, and countries, but also greatly improves the efficiency of the industrial chain operation and brings the development of the entire economy and society. And human progress. Looking into the future, new financial formats such as quantitative investment and smart investment, artificial intelligence pricing and claims accounting, financial cloud services, and blockchain deposits are evolving, and will lead the financial industry into a new era.