Reporter: Huang Xi
Source: People's Network
At the time of the People’s Bank of China’s research and development of digital currency, many institutions took the opportunity to speculate, and various “li ghosts” emerged one after another.
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On November 13, the People's Bank of China announced that it did not issue legal digital currency (DC/EP) and did not authorize any asset trading platform to conduct transactions. It is still in the process of research and testing. This is the third time the Chinese central bank has ridiculed the issue of legal digital currency.
Although there is no specific timetable for when to launch, the issuance of legal digital currency is already the general trend. So far, many central banks around the world have revealed the research and development progress of their “central bank digital currency”. In addition to China, there are also the United States, Sweden, and Canada.
So what is the legal digital currency in China? Will it have a dramatic impact on the existing financial system?
1 When will it be launched?
“The People’s Bank of China has been studying the legal digital currency since 2014 and is still in the process of research and testing.” In the face of the legal digital currency “Li Gui”, on November 13, the Chinese central bank rushed: “DC/EP on the market” "" or "DCEP" illegally set the digital currency, and the legal digital currency issuance time is inaccurate. At the same time, the current so-called legal digital currency issuance, as well as the use of the “DC/EP” or “DCEP” on behalf of the PBOC to conduct transactions on the asset trading platform may involve fraud and pyramid schemes.
The reporter noted that this is the third rumor of the Chinese central bank's recent statutory digital currency. At the beginning of November, there were online rumors that the Central Bank Digital Money Working Group met with the heads of relevant blockchain companies in Shanghai, and these companies are likely to participate in the first batch of data on the central bank's digital currency. In this regard, the central bank denied it.
In September, a large number of net news sources said that "the central bank issued digital currency within 80 days, and will initially be issued to the four major banks, Alibaba, Tencent and UnionPay." Subsequently, the central bank confirmed that the network launch time and participating institutions were inaccurate information.
Chinese central bank governor Yi Gang also said at the press conference on September 24 that there is no timetable for digital currency launch, and there will be a series of research, testing, pilot, evaluation, risk prevention, especially cross-border use of digital currency. There will also be a series of regulatory requirements such as anti-money laundering and counter-terrorism financing.
However, the industry has been eagerly awaiting the birth of China's legal digital currency, and any turmoil has touched people's sensitive nerves.
“China’s legal digital currency research and development has been in existence for five years, and there are signs of preparation for issuance in the near future.” On November 13, Li Lifei, the head of the China Internet Finance Association blockchain working group and the former head of the Bank of China, Finance and Economics Annual Meeting 2020: Forecasting and Strategy is as good as it is.
In an interview with the International Finance News, Cao Shengxi, an associate researcher at IMI and a Ph.D. student at Tsinghua University, said that it is difficult to predict the specific time for the Chinese central bank to issue digital currency. However, the People’s Bank of China has been preparing for a long time. If the policy allows it, it may be in the near future. With the introduction of digital currency, they are technically ready to reserve.
"A bold judgment is that China may be the first country in the world to issue a legal digital currency." Cao Shengxi said.
Economics expert, author of "Picture Block Chain" and "Certificate of Economics", Li Yanyue, chief researcher of OK Block Chain Engineering Institute, also analyzed the "International Finance News" reporter. China's research on digital currency is relatively early, and it has matured in the past two years. The theoretical and technological progress has been announced, and recently the news of the design of the central bank's digital currency structure has revealed that the official issuance and launch of the central bank's digital currency is only waiting for an opportunity, or not far.
2 What do you like?
So, what might China's legal digital currency (DC/EP) look like?
It is understood that, conceptually, the name of R&D used by the People's Bank of China is called “DC/EP”, DC (Digital Currency) is digital currency, and EP (Electronic Payment) is electronic payment.
In attending the press conference in September, Yi Gang pointed out that digital currency research has made positive progress. The digital currency of the People's Bank of China is combined with electronic payment. The goal of the future digital currency is to replace a part of M0, not to replace M1 or M2.
"The digital currency issued by the People's Bank of China is the base currency M0, which does not involve M1 or M2. The mechanism is like that after the People's Bank of China printed the gold, the residents got the cash printed by the People's Bank through commercial banks." Cao Shengxi said.
In Cao Shengxi's view, the future digital currency can play a role in replacing cash for most of the time. For example, he said, for example, two people now trade, A takes ten dollars in cash to B, and B receives the ten dollars, without any assistance from the Internet. The digital currency issued by the People's Bank of China will also have such a function. As long as the mobile phones of both parties have electricity, there is no need to open an account in the bank or Alipay. In the case of dual offline (both mobile phones are not connected to the Internet), the transfer of money can also be achieved. . The central bank's digital currency has the reliability and anonymity of cash transactions, which is one of its underlying design logic.
On November 12, at the 4th Singapore Financial Technology Festival Forum, Mu Changchun, director of the Digital Money Institute of the People's Bank of China, also stated that the Chinese version of the central bank's digital currency is neither aimed at cross-border payments nor “money coins”. "The same is used for wholesale funding services, but to provide more redundancy for China's already advanced electronic payment systems.
So, is there a risk in issuing digital currency?
Zhou Xiaochuan, the former governor of the People’s Bank of China, said in a public occasion recently that “the central bank’s digital currency is more for domestic considerations and may be more focused on providing digital currency in the wholesale and liquidation between central banks and third-party payers. Although theoretically The central bank's digital currency can also serve retail, but it will be very cautious because it will have a big impact on the existing financial system."
Li Yuyue pointed out that at present, the impact and risk of digital currency issuance on the existing financial system are actually concentrated in the two theorems of "anarchist currency" theory and the so-called "free currency competition theory" and its practitioners. The digital currency issued through the national credit endorsement has minimized the risk in risk design, or controlled the risk within a controllable range.
Li Yuyue told reporters that the current design of the Chinese central bank's digital currency design has two points designed to minimize risks: First, the central bank's digital currency clearly does M0; second, the two-tier structure, through commercial banks to promote, the market Operational design has reduced the impact on the existing financial system and banking system.
Cao Shengxi also believes that the digital currency issued by the People's Bank of China is a legal digital currency. It has unlimited legal liability and is equivalent to RMB cash, so there is basically no risk to the holder. In addition, the technical bottom layer of the Chinese central bank's digital currency has also been tested several times.
However, Cao Shengxi stressed that one point that the central bank should formulate a legal digital currency plan is that the protection of privacy can be stipulated in the form of law when designing the plan, which has a great influence on the direction of the digital currency.
3 is very different from Libra
The concept of "digital currency" was once heated up and could not be separated from Libra's "boosting the waves." So, can the Chinese central bank’s upcoming digital currency and Libra draw an equal sign?
"International Finance News" reporter interviewed many insiders learned that the Chinese central bank's upcoming digital currency and Libra have at least four differences.
First, the types of currencies that are anchored are different. Libra anchors a basket of currencies, while DC/EP anchors fiat money, anchoring only the renminbi.
In this regard, Cao Shengxi stressed that the digital currency issued by the central bank is a legal currency, with unlimited legal liability, behind the credit of the entire country, and the same as the renminbi cash. Libra does not have national credit behind it. It exists in the form of stable coins, which correspond to a stable currency of a basket of currencies.
Second, the central bank clearly pointed out that DC/EP replaced part of M0, while Libra is not conclusive about M0, M1, and M2, but the possibility of M0 is very low.
Cao Shengxi believes that from the perspective of the program, Libra's design goal is largely aimed at cross-border payments, so it will be emphasized that a basket of currencies can be exchanged for Libra as a reserve asset. This is also related to Facebook being a global company. The digital currency issued by the People's Bank of China is still based on domestic use, but only in the replacement part of the M0 cash.
Third, the two distribution and promotion models are different. DC/EP is promoted by commercial banks, and Libra is promoted through associations. It is a market-oriented and enterprise-oriented promotion behavior.
In addition, Cao Shengxi added that the digital currency issued by the central bank is a digital form of the renminbi, so its exchange rate fluctuates with the value of the renminbi, and because the stable assets behind Libra are a basket of currencies, its exchange rate is uncertain. .
So, will the Chinese central bank’s upcoming digital currency be synonymous with blockchain technology?
On August 10th, Mu Changchun made it clear at the third "China Finance Forty People Yichun Forum" that the central bank's digital currency (DC/EP) did not use blockchain technology at the central bank.
Cao Shengxi pointed out that although the central bank issued digital currency without the blockchain technology at the central bank level, the central bank's technology is open. If the commercial banks want to use the blockchain to issue digital currency in the future, the underlying technology of the central bank allows such a solution.
It is understood that the blockchain technology in the origin of the concept refers to the bitcoin blockchain, which has developed a variety of forms. Now it refers to a blockchain thinking mode, which is a distributed technology. Li said that most of the digital currency is issued through blockchain technology, and blockchain technology is the underlying technology of these digital currencies. But there are also some digital currencies that don't use blockchain technology entirely, or a mix of several technologies that use distributed thinking more or less.
4 racing war
Today, on the digital currency track, countries are desperately trying to seize the opportunity. Public information shows that countries including China, the United States, India, Singapore, Canada, Sweden, the Bahamas, Uruguay and Kazakhstan have begun to carry out the central bank's digital currency layout.
The Bank of International Settlements has previously investigated 63 global central banks, 41 of which are located in emerging market economies and 22 in developed economies, accounting for nearly 80% of the world's population and more than 90% of economic output. 70% of the central banks have or will soon engage in theoretical research on the Central Bank Digital Currency (CBDC).
In Li Yuyue's view, the current blockchain is a racing war, a war of standard setting and discourse power. Who is the first to develop the most powerful public chain, and let most of the world's applications and the vast majority use it. Maybe you can master the right to make rules.
"Digital currency is not entirely a war of technological advancement, but also a war of financial discourse. Which country is the first to let the market with the largest share of stable currency anchored by its legal currency, it has mastered certain financial dominance in the international market. Right.” Li Yuyue pointed out that the digital currency anchored by the central bank is a manifestation of credit, and it can also be said to be the embodiment of financial soft power and national strength.
Cao Shengxi pointed out that the digitization of money is an era trend. He said that if the financial crisis comes again, will Western countries still have enough monetary policy space to deal with the financial crisis? It may not be in the current financial system, but the digital currency will open up new space for monetary policy of various countries, and it will be able to fine-tune the regulation of enterprises and residents, which can enhance the ability of Western countries to cope with financial crisis.
But for countries that use digital currencies, Cao Shengxi believes that there is a need for classified discussion. For example, among the big countries, China is the only country that is so close to issuing a legal digital currency; for some small countries with weak economic foundations, its own currency is very weak, and may have given up its own currency sovereignty. Accepted; another country, such as Venezuela, because its domestic central bank credit has gone bankrupt, so through the blockchain support, issued a digital currency linked to oil, only to collect additional coins tax.
In addition, Cao Shengxi said that now countries are taking advantage of the digital currency, which is more or less stimulated and promoted by the business world like Libra, because if you do not issue your own legal digital currency, this part of the rights may be surpassed by oneself. The occupation of the commercial union of national monetary policy sovereignty may be a reason why countries are now more anxious than before.
5 first mover advantage
So, what is the advantage of the Chinese central bank in developing digital currency?
The reporter learned that, first of all, the Chinese central bank's development of digital currency, relatively speaking, the technical route has been relatively mature. Cao Shengxi said, "With regard to the idea of the central bank's digital currency, China has been carrying out a series of technical preparations since 2014."
Secondly, because there is no shackle of the old framework, the development of third-party payment in China is much better than that in Europe and other countries. The payment is electronic or even digital, and the system is flexible and turn around.
Li Yuyue said that China still has a population base dividend. China's population base is large (more data), mobile payment is popular, a large amount of data and more subdivided usage scene data can make the design of the central bank's digital currency more perfect, and even directly cross the 1.0 and 2.0 era and directly enter the 3.0.
The third advantage is related to China's rich financial innovation practice. The digital currency framework proposed by the People's Bank of China is the dual structure of the central bank and commercial banks. The specific financial innovation can be completed by commercial banks.
In addition, the international status of the renminbi has steadily increased. Li Haoyue pointed out that the Chinese central bank's digital currency essentially anchors the Chinese legal currency, the renminbi. In recent years, the renminbi's voice in the international financial market has increased, and the renminbi's wide recognition in the international financial market is the issuance of digital currency by the central bank. Prerequisite advantage.
The track of digital currency is an innovative game. So, for the financial industry, where is the innovation space?
Cao Shengxi believes that this kind of innovation space lies in banks. He said that after the People's Bank of China issued the legal digital currency, the people passed the commercial bank to obtain this part of the digital currency issued by the People's Bank of China. In view of the innovations made by commercial banks on this basis, the People's Bank of China has not made any detailed technical regulations, so this is also reserved for domestic commercial banks, as well as foreign commercial banks that operate in China to play their innovative space.
"In the world, China may become the first country to issue digital currency, and it may play a leading role in standards." Cao Shengxi said.
At the same time of innovation, Zhou Xiaochuan emphasized that the regulatory requirements for digital currency application and progress at different levels are different, and an organizational coordination mechanism is needed in the future. He cited anti-money laundering as an example. "Now the world attaches great importance to anti-money laundering and anti-terrorism financing. How anti-money laundering and anti-terrorism financing can be cut into every different level of payment system has become a huge challenge, which may significantly increase costs. At the same time, it will also reduce efficiency. But this is really necessary. From a global perspective, such functions are now highly valued."