Babbitt Column | Digital Sterling: The Vision and Heart of the Financial Technology Story

The digital currency of the central bank is one of the most important financial technology events in China recently. We look for the vision of the original digital legal currency from a far-off 2016 financial technology speech. At the end of August 2019, the Bank of England's Mark Carney made a public speech against the US dollar hegemony in the United States, and opposed the US dollar as the world's reserve currency, suggesting that a comprehensive hegemonic digital currency could be replaced by the US dollar. As the originator of the modern banking industry, the Bank of England, after Libra released a white paper, made this statement to the digital currency shocking countries, and the central banks and major financial institutions have further deepened their attention to digital currency. Later, the 26 central banks heard Libra, and the finance ministers of Germany and France jointly expressed their views after the meeting and clearly opposed Libra.

At the end of September 2019, after returning from the UK, the author discussed and reviewed Fnality's USC stable currency wholesale digital currency project in the process of studying with Fnality and combing and reviewing the Bank of England's research on digital currency as the Bank of England. literature. We found that as the leader of the first echelon of digital currency research, the Bank of England’s digital sterling plan, which was proposed in 2015, is far more forward-looking than the imagination. The research team has thus written a large plan to hide the revival of the century-old pound. The Mystery of the Central Bank's Digital Legal Currency.

In the course of tracking the research on digital law in the UK, the speech made by the Bank of England’s chief cashier, Victoria Cleland, in London in September 2016 had a significant impact on the author. The research team translated it into Chinese, and scholars who study digital currency can also know the history of digital currency.

The content presented in the translation is downloaded from the public channel. The main points conveyed in this speech include:

1) Technology changes business and finance. An example is given to illustrate this point. Among them, special emphasis is placed on technology, namely digital technology or financial technology (Fintech). At present, some domestic views believe that technology cannot change the nature of business and finance, and that technology services business and finance, but can not change them, such as requiring blockchain technology to bypass financial development. N. Gregory Mankiw said in the famous textbook "Macroeconomics" that "macroeconomics is an empirical discipline, promoted and guided by extensive experience" and that "when the economic situation changes At the time, economists always update the classroom content in a timely manner." After the publication of Facebook Libra in 2019, the world financial community has taken corresponding actions because of the shock, indicating that the economic situation has changed. If we think that technology changes finance, this development space is very large, and the changes brought about by new technologies will rewrite the existing theoretical framework of economics and management.

2) Digital currency is the first major currency change in 322 years. The throwing of this view is based on the historical evolution of the old currency of the British pound, and the Bank of England was established in 1694, just 322 years away from 2016. The conservative and cautious UK's adherence to monetary policy will never be lower than that of emerging countries, but when technology is applied to the historical intersection, the UK is the first to respond and propose countermeasures. Therefore, the central bankers who were present at the time were excited about it and realized the coming of a new era. In this speech, she stressed that the Bank of England has not changed the pound in the past 322 years, this is the first time in history. It can be seen that the Bank of England's issuance and research on digital legal currency is well thought out.

3) How the digital pound operates. The number of pounds will be the same as the digital tokens such as Bitcoin, trading 24 hours a day, 365 days a year, but the trading support behind it is provided by the central bank. The number of pounds is French currency. The core concept is that the Bank of England maintains it from start to finish. It will operate in the same way as all the legal currency systems, which are dominated and regulated by the central bank. With the support of information technology, the transaction is uninterrupted, and the digital features are no different from the existing digital currency, but the application is more secure and convenient.

4) The central bank of the digital pound. Currency is the core tool for economic and social financing and commodity circulation. Therefore, the central bank of the digital pound emphasizes that its service group is exactly the same as the original credit currency system, and even more extensive. As the legal tender, the digital pound provides services to commercial banks, commercial enterprises and the general population. Fulfilling currency as a function of trading medium, value scale, means of circulation and wealth storage. And the central bank in the supervision, will provide more convenient technical means and information platform for transaction security.

5) Open RTGS real-time full payment system. RTGS (Real Time Gross Settlement) is an interbank electronic transfer system established in accordance with international standards. The settlement in the RTGS mode is completed in real time. This mode has high requirements for the liquidity of the bank. It is suitable for a single payment system with a large amount of transactions and a small number of transactions. This model is adopted by China's large-value payment system and the US Fedwire system. In order to establish such a digital currency, the Bank of England decided to study the opening of RTGS to British technology companies to support the central bank's digital currency. Exploring the opening of payment channels for technology companies in the field of financial innovation can be seen in their support.

6) The introduction of digital legal currency will inevitably change the existing financial system. At the time of the speech, even today, some scholars insist that the digital currency is only a science and technology project and has no other meaning. After the publication of Facebook's Libra white paper, there are still economists who believe that Libra or other digital currencies have not changed the financial system. After studying the Fnality white paper, we are even more convinced that the issuance of digital currency will definitely bring about a huge change in the existing financial system. In this speech, which was published in the Bank of England, it is believed that banks will likely lose their intermediary status, which obviously impacts the existing financial system.

7) The issuance of digital legal currency by the central bank will trigger competitive deposits between banks and commercial banks. The digital pound allows the central bank to serve corporate, personal and commercial banks more conveniently, so for the Bank of England's own mechanism that integrates the functions of central and commercial banks, this convenience will lead to an increase in central bank capacity. obvious. In normal times, there is no big difference in the people’s money, but once there is an economic crisis, the people will talk about the transfer from commercial bank deposits to the central bank’s digital legal currency, because that is zero risk, which will crowd out the deposits of commercial banks. In times of economic crisis, the central bank does not want funds to remain in the central bank, but uses funds to protect entities. In addition, the inefficient model of commercial banks will cause the operating share to be squeezed. After the emergence of synthetic digital currency (sCBDC) in July 2018, technology companies that issued stable coins also competed with commercial banks. This issue was discussed by the International Monetary Fund in July 2019, "The Rise of Digital Money." We also have "the ambush on ten sides, will commercial banks really be besieged on all sides?" 》 to analyze.

8) Predict the emergence of two different digital currency models for wholesale digital legal currency (wCBDC) and retail digital legal currency (rCBDC).

Although we try to explain the main points of the lecture and the hot issues on the spot, we know that the explanation is so good, we can't copy the spark touch in the live communication. In order to help the reader understand, I will attach the PPT of the speech, I hope everyone can understand it. The initial focus of the Bank of England's digital legal currency research and development, and the implementation of the plan.

The speech was rewritten afterwards. At the time, she also shared two important points that did not appear in the manuscript: First, the Bank of England was very worried about the third party payment and presented the data. Second, the vision of the digital pound was to return to the previous The pound is the era of the world's reserve currency. The second point she took gently, no explanation. Most of the people present did not care because it was considered an impossible task. It was later discovered that the Bank of England was actually very concerned about these two items. In August 2019, the Bank of England governor publicly opposed the dollar hegemony in the United States is a testimony.

Fintech: opportunities for all?

Financial technology: the opportunity for everyone?

Remarks given by Victora Cleland, Chief Cashier

Message from Victoria Cleland, Chief Cashier

It is a pleasure to be here, at the second international workshop for P2P Financial Systems: an event focused on the exciting changes that technology is making to the world of finance, and in particular digital currencies and distributed ledger technology, crowdfunding and peer-to -peer lending. I am very happy to be here to participate in the 2nd International Symposium on P2P Financial Systems: Focus on the events that technology is bringing to the financial world, especially digital currency and distributed ledger technology, crowdfunding and peer-to-peer lending .

The Bank is proud to co-sponsor this valuable opportunity to bring together a diverse range of experts – academics, technology innovators, financial institutions, policy makers, and regulators – to share knowledge, make new connections, and sow the seeds for future collaboration. The Bank is proud to co-sponsor this valuable opportunity to bring together experts, including academics, technology innovators, financial institutions, policy makers and regulators, to share knowledge and build new connections. Sowing seeds for future cooperation.

The Bank of England has been committed to, and benefitted from, collaboration. Last year alone we launched the One Bank Research Agenda and held a stimulating Open Forum. We are currently engaging with a wide range of interests on a number of key policy areas Of importance to the Bank's future work, from digital currencies to climate change. The Bank of England has long been committed to working together and benefiting from it. Last year alone, we launched the “One Bank Research Program” and hosted an exciting open forum. From digital currencies to climate change, we are currently working with a wide range of stakeholders to explore many key policy areas that are critical to the future work of the bank.

The benefits of working together across sectors and employed genuine diversity of thought are not new and were acknowledged by John Stuart Mill almost 170 years ago: 'It is hardly possible to overrate the value…of placing human beings in contact with persons dissimilar to themselves, And with modes of thought and action unlike those with which they are familiar…such communication has always been…one of the primary sources of progress. ' The benefits of inter-departmental cooperation and the adoption of true intellectual diversity are nothing new. And was acknowledged by John Stuart Mill about 170 years ago: "It is almost impossible to overestimate the value of interacting with people of different minds, and the way of thinking they are familiar with. Different ways of acting… This communication has always been one of the main sources of progress."

For this reason central banks across the world, many of which are present here today, have historically worked together with universities. We continue to develop and benefit from these relationships and we seek to learn from the private sector and from innovators. The central bank has always worked with universities, and today there are many central banks in the world. We will continue to develop and benefit from these relationships, and we seek to learn from the private sector and innovators.

Technology has never been more important to our day-to-day lives. We rely on it to keep us informed about the news, for shopping, for finding our way around, and even, I understand, for finding romance. a huge impact on commerce.

Technology has never been so important to our daily lives. We rely on it to keep us informed of news, shopping, find our way out, and even find love as far as I know. Technology has also had a huge impact on business.

The past decade or so has witnessed the emergence of new business models that utilise technology to offer goods and services in different ways. We now have many new household names – Uber, Netflix, Airbnb, I could go on. Firms like these have recalibrated the Demand of consumers, who increasingly expect goods and services to be provided more quickly, cheaply, and effortlessly – often by using of smartphones. Some businesses have emerged, some have prospered, but others have failed to adapt, resulting in the disappearance of some once Famous names from the high street. Over the past decade or so, witnessed the emergence of new business models that use technology to deliver goods and services in different ways. Now, we have many new household names Uber, Netflix, Airbnb, and more. Companies like this have realigned consumer demand, and they increasingly want to offer goods and services faster, cheaper, and more easily by using smartphones. In the process, some companies have emerged, some companies have prospered, but others have failed to adapt, leading to the disappearance of some famous corporate names from the streets.

And technology is also changing the financial system: a sector that is perhaps more susceptible than most to transformation, given its products are already almost entirely digital. Finance is also a sector where there is scope to do more to meet the growing demands of consumers. Technology is also changing the financial system: Given that its products are almost entirely digital, the industry is likely to transform more easily than most industries. Finance is also an industry that can do more to meet the growing needs of consumers.

There is a lot of interest in Financial Technology – FinTech. The very nature of technological developments means that we can't know how technology will be used in the future – could anyone in the 1980s have been able to predict what the internet is used for In 2016? There is a high expectation that the latest wave of FinTech activity will be transformative, with considerable activity expected not least around distributed ledger technology (DLT). Some of the most recent changes have been more tactical, and focused on enhancing the customer We have yet see the paradigm shift. But there are projects underway that could reshape the trading and settlements landscape, and some have suggested that new crowdfunding and peer-to-peer deposit and lending schemes could Disintermediate incumbent banks. FinTech has attracted a lot of interest. The essence of technological development is that we don't know how technology will be used in the future. Can anyone in the 1980s predict the use of the Internet in 2016? There is a high expectation that the most recent wave of financial technology activities will be transformative, and it is expected that there will be quite a lot of activities happening, especially around distributed ledger technology (DLT). Some recent changes have been more strategic, focusing on enhancing the customer experience while maintaining the core structure. We have not seen a paradigm shift. However, some ongoing projects may reshape the pattern of transactions and settlements, and it has been suggested that new crowdfunding and peer-to-peer deposit and lending programs may cause existing banks to lose their intermediary status.

Since 2010, more than $50bn has been invested in almost 2,500 FinTech companies. In 2015 alone, the UK alternative finance sector grew by 84%. Over 24 countries are currently investing in DLT with $1.4bn in investments over the past three years. Over 90 central banks are engaged in DLT discussions worldwide and more than 90 corporations have joined blockchain consortia. 80% of banks are predicted to initiate DLT projects by 2017. Since 2010, more than 50 billion have been invested in nearly 2,500 financial technology companies. Dollar. In 2015 alone, the UK's alternative finance sector grew by 84%. Over the past 24 years, more than 24 countries have invested in DLT, with an investment of $1.4 billion over the past three years. More than 90 central banks around the world participated in the DLT discussion, and more than 90 companies have joined the blockchain consortium. It is estimated that by 2017, 80% of banks will start DLT projects.

So, why is a 322 years old institution interested in FinTech? What are the opportunities for us? We are responsible for monetary and financial stability, for the macroprudential regulation of the many participants within the financial system, and for operating and promoting safe and efficient Payment systems, including through the provision of the ultimate risk-free asset: central bank reserves and banknotes. We need to understand what FinTech means for the entities we regulate, how it might impact the overall safety and soundness of the financial system, and how And then course for our own operations, through which we implement those policies. So why is a 322-year-old institution (translator: the Bank of England, founded in 1694, just left Interested in FinTech in 2016 322? What is the opportunity for us? We are responsible for monetary and financial stability, responsible for the macroprudential supervision of many participants in the financial system, and are responsible for operating and promoting safe and efficient payment systems, including the provision of ultimate risk-free assets: central bank reserves and banknotes. We need to understand the meaning of financial technology to our regulated entities, how it affects the overall security and robustness of the financial system, and how to change the transmission mechanisms of financial policies. Of course, for our own operations, we will implement these policies through these operations.

In his recent speech "Enabling the FinTech transformation: Revolution, Restoration, or Reformation?". the Bank of England Governor Mark Carney, set out the ways the Bank is enabling the FinTech transformation:

widening access to central bank money to non-bank Payment Services Providers;

 being open to providing access to central bank money to new forms of wholesale securities settlement;

 exploring the use of DLT in our core activities;

 partnering with FinTech companies on projects of relevance to our mission;

calibrating our regulatory approach to FinTech developments.

In his recent speech, “Implementing Financial Technology Transformation: Is Revolution, Recovery or Reform?”, Bank of England Governor Mark Carney clarified the bank’s approach to financial technology transformation:

• Expanding central bank operations and also providing non-bank payers to deposit at the central bank;

• Open to provide central bank with settlement of new forms of wholesale securities transactions;

• Explore the use of DLT (Distributed Accounting System) in our (central bank) core systems;

• Work with financial technology companies to conduct projects related to the central bank;

• Adjust our approach to the regulation of financial technology development (Translator: In the UK, the regulator is part of the central bank).

I would like to focus on 2 of these – widening access, and DLT. And before becoming too distracted with crystal ball gazing, I wouldф like to step back into the past – to 1694, when the Bank of England issued its first banknotes. Since then, the function of banknotes has remained broadly the same. A banknote is essentially an IOU from the central bank with a clear unit of account which enables the bearer to hold it as a store of value and use it as a medium of exchange.

I want to focus on two of them: open central bank business and DLT. Before I was distracted by the crystal ball, I wanted to briefly review the past and return to 1694, when the Bank of England issued the first batch of banknotes. Since then, the function of the banknotes has remained largely unchanged. Banknotes are essentially borrowers of the central bank, with clear account units that enable the holder to retain them as value stores and as an exchange medium.

One can argue that, Bank of England notes were ahead of their time. They have always offered a very widely accepted, fully distributed, peer-to-peer payment mechanism. And banknotes provide full and final instantaneous settlement in central bank money. Are still a key payment method today and accounted for around half of consumer payments in 2015, with around 2.2mn UK citizens relying almost exclusively on cash for everyday transactions. And with demand expected to remain strong, it is important that banknotes too benefit from the Indeed we look forward to launching our first polymer banknote – the £5 featuring Sir Winston Churchill, next week, on 13 September. Someone might say that the Bank of England’s bills have led the world before. They have always provided a widely accepted, fully distributed peer-to-peer payment mechanism. Banknotes can provide full and final instant settlement of the central bank. These bills are still the main payment method today, accounting for about half of consumer payments in 2015. About 2.2 million British citizens rely almost exclusively on cash for daily transactions, and since demand is expected to remain strong, it is important that banknotes also It should benefit from the use of the most advanced technology. Indeed, we look forward to the launch of our first polymer banknote, Sir Winston Churchill’s £5 bill, on September 13 next week.

Banknotes are not the only way that we enable settlement in central bank money. The Bank also provides commercial banks and a range of non-banks with access to central bank deposit accounts (usually referred to as 'reserves') and the ability to settle interbank Compliance across these accounts, amounting to around £500 billion every day. Since we launched Real Time Gross Settlement (RTGS) infrastructure in 1996, settlement banks have benefitted from full and final instantaneous settlement. Now RTGS is twenty years old, the Bank is drawing Up a blueprint for a new generation of RTGS. We will be consulting on a package of proposals very shortly, and have already committed to broadening access further to non-bank payment service providers. Banknotes are not the only way for us (the central bank) to settle money. The Bank also provides access to central bank deposit accounts (often referred to as “reserves”) to commercial banks and a range of non-banks, and is able to liquidate interbank debt between these accounts for a total of approximately £500 billion per day. Since we launched the Real-Time Total Settlement (RTGS) infrastructure in 1996, the Settlement Bank has benefited from comprehensive and final real-time settlement. Now that RTGS has been around for 20 years, the Bank is working on a blueprint for a new generation of RTGS. We will consult on a package of proposals in the short term and are committed to further expanding central bank services to non-bank payers.

What do banknotes and RTGS have to do with developments in FinTech? We need to consider how we can harness FinTech to enable us to continue to deliver a safe and efficient payments system in a changing environment.

What is the relationship between banknotes and RTGS and the development of financial technology? We need to consider how we can use financial technology to enable us to continue to provide safe and efficient payment systems in a constantly changing environment.

Separate to the current RTGS review, we are undertaking more fundamental long-term research on the wide range of questions posed by the potential of a central bank-issued digital currency (CBDC). Whether a CBDC would be feasible and whether it would benefit the Economy and the financial sector, over the medium term are big issues, and the answers remain far from clear. We have embarked on a multi-year research programme so that any future decision is informed with a full understanding of the implications. We have invited contributions to a set of research questions that we have recently published. on the opportunities and challenges that could arise from the introduction of CBDC. Unlike the current RTGS review, we are working on the digital currency (CBDC) issued by the central bank. Conduct more fundamental long-term research on a wide range of issues arising from potential. In the medium term, whether CBDC is feasible and whether it will benefit the economic and financial sectors is a big problem. The answer is still far away. We have embarked on a multi-year research program so that any decision in the future can fully understand its meaning. In order to support this, we invite the introduction of the recently published “CBDC Opportunities and Challenges” to support a series of research issues.

We need to understand the potential economic impact of extending access to central bank money.

A key part of the question relates to the potential breadth of access to CBDC and the functionality provided. At one end of the spectrum, CBDC could be quite limited and reserved for financial institutions: indeed RTGS today would be viewed as a limited-access CBDC , and the Bank's proposals to widen access will extend its reach over the next few years. We need to understand the scope of the digital currency to expand the service and the functions that need to be provided. In extreme cases, digital legal currency only provides services to financial institutions. In a sense, RTGS can be considered as a restricted digital currency (Translator: Because RTGS is only open to financial institutions), the proposed digital currency plan of the Bank will expand the scope of RTGS services within a few years. (Translator: Here is the wholesale digital currency)

The the the the the While households are able to achieve this today directly with banknotes, they must use commercial banks or other financial institutions to make electronic payments. But the biggest problem will happen when the digital currency expands services to merchants and families, allowing them to open accounts in the central bank, Do real-time payments, and immediately have final settlement, and fully electronic (Translator: here is the retail digital currency and its operating methods). Now families can have such services, but they must go to commercial banks or financial institutions to get such electronic payments.

In the UK, those intra-bank payments are themselves fully backed by central bank money – either directly in the case of RTGS, or through so-called 'prefunding' in the retail payment schemes, eliminated settlement risk. The question is what could the Benefits and costs be of removing this layer and of allowing businesses and consumers to transact directly and instantaneously in central bank money. In the UK, these interbank payments are fully funded by the central bank, either directly in the RTGS or through the retail payment plan. The so-called "advance payment" eliminates the settlement risk. The problem is what would be the benefits and costs of removing this layer and allowing companies and consumers to trade digital currency directly and immediately.

There are numerous implications to be thought through. As Deputy Governor Ben Broadbent highlighted,providing wide access to CBDC could fundamentally change the structure of the financial system. For example, if a CBDC provided competition for commercial bank deposits, one outcome could be a reduction In deposit funding available to commercial banks, undermining their ability to provide credit to consumers. The risks that this could pose need to be fully explored and understood. There are still many factors to consider. As Vice President Ben Broadbent emphasized, providing a wide range of digital currency will fundamentally change the structure of the financial system. For example, the competition of digital legal currency may reduce the deposit of commercial banks (Translator: she did not mention which unit will compete with commercial banks for deposits, in fact, the Bank of England, because the people are more willing to exchange money for the number of pounds in the central bank, no The risks, and the speed of operation, rather than in traditional bank accounts, may result in a reduction in the deposit funds available to commercial banks, thereby weakening their ability to provide credit to consumers. We need to fully explore and understand the risks that this may bring.

Could, and should CBDC be delivered using DLT and is this technology the best way to achieve the necessary scalability and resilience? What are the implications on the privacy, and how could the rules for the operation of The distributed has been in in infancy, and there are numerous questions that need exploring. The Bank has already undertaken a proof of concept using this technology and we are looking for new opportunities through our FinTech accelerator. We also need to understand the technology. select. Can I use DLT technology for digital legal currency? And is the technology the best way to achieve the necessary scalability and resiliency? How does this affect privacy? How to manage the operational rules of distributed ledgers? DLT is still in its infancy and there are many issues to explore. The Bank has carried out technical proof of concept and we are looking for new opportunities through the FinTech accelerator.

These are significant questions and we are keen to receive external input and innovative ideas as we work through the possibilities. There is already a well-established relationship between the Bank and academia and we published our research questions in July in order to help stimulate further research In this area. I hope you all have a successful and inspiring conference. In the words of Sir Tim Berners-Lee – 'we need diversity of thought in the world to face new challenges'. These are very important issues, we hope Try to seek external input and innovative ideas where possible. The Bank has established a good relationship with the academic community. We published research questions in July to help stimulate further research in this area. I hope that everyone's meeting will be a complete success. In the words of Sir Tim Berners-Lee: "We need diversity of ideas from all over the world to face new challenges."

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Author:

Cai Weide

Director of Digital Society and Blockchain Laboratory of Beihang University, Chief Scientist of Tiande Technology, Major Project Leader of National Ministry of Science and Technology, Director of Blockchain Internet Lab of National Big Data (Guizhou) Comprehensive Experimental Zone, Tianmin (Qingdao) International Sandbox Research Dean of the Academy, Honorary Dean of the CCID Research Institute of CCID (Qingdao), President of the Blockchain Industry Professional Committee of China Asia Economic Development Association, Director of the North Mujin District Block Chain Committee

Wang Juan

Ph.D. in Applied Economics, Xi'an Jiaotong University (post), Ph.D. in Systems Engineering, University of Florida, USA