Director of Research Bureau of the People's Bank of China: Currency Competition in the Digital Age

Source: Sina Finance

Editor's note: The original title was "Central Bank Wang Xin: Currency Competition in the Digital Age"

Sina Finance News on December 17th, the 3rd China Internet Finance Forum 2019 was held in Beijing with the theme of "Financial Technology to Facilitate the Construction of Modern Financial System", and Wang Xin, Director of the Research Bureau of the People's Bank of China and Secretary-General of the China Finance Association attended Activities and keynote speeches.

Wang Xin, Director of the Research Bureau of the People's Bank of China and Secretary-General of the China Institute of Finance

Wang Xin believes that private digital currency is difficult to solve the problem of trust, so it cannot be widely used. If the folk digital currency is generated by an algorithm and there is no central issuer behind it, it is through an algorithm who maintains the stability of the folk digital currency and what the source of its value is. It is doubtful.

In addition, it is difficult for private currencies to meet the needs of promoting economic development and maintaining financial stability. Everyone knows that in order to maintain the needs of economic development, the supply and supply of money should be flexible and should be carried out flexibly with economic development. Regulating, when a crisis occurs and the liquidity of private institutions and financial markets suddenly dry up, there must be a unified institution such as the Central Bank to provide liquidity to the market. In this case, if the private digital currency occupies a dominant position, it is difficult for the private currency to play such a role, so it is difficult to adapt to the needs of modern economic development and financial stability.

The following is the actual record of the speech:

Wang Xin: Dear President Li, leaders and colleagues;

good morning guys! I am very glad to have this opportunity to communicate with you today, and I am very grateful to the organizer for the invitation. Today I want to report to you the topic "Currency Competition in the Digital Age". Speaking of this topic is because of the continuous emergence of private digital currencies, especially the appearance of the Libra coin white paper in June this year, which caused a great shock. No matter what the future of Libra coins will be and the future, various private cryptocurrencies will still Continuing to appear in different ways must attract our great attention.

In the digital age, data and algorithms will play an increasingly important role. It may play a certain monetary function to a certain extent and in a certain area, that is, transaction means, value storage, value scale, etc., but it must be completely Several functions of money need to be observed. This raises the question, if the so-called encrypted digital currency further functions as a currency, is it possible to have an impact on the official legal currency in the future? This may be a question worth pondering deeply. From the perspective of the development of currency history, currency was first issued in a decentralized manner, but also by private institutions. The central bank was a system that appeared very late. In fact, it is an evolutionary path from decentralized to centralized and private to official. Will there be a reversal in the digital age? Will folk currency have an impact on fiat currencies or even replace it in the future? This is also worth our in-depth consideration. Here, I want to share some of my personal observations with you. I personally believe that the above possibility should be relatively low. Currency competition in the digital age will still be fiat currency competition, but fiat currency competition will have more characteristics of the digital age. Why can't folk digital currencies replace fiat currencies? There are several reasons:

Currency is not only a means of payment and a measure of value. In fact, it has a strong political color. It is also a symbol of sovereignty and government. Sovereign countries usually issue their own sovereign currency. Therefore, this state, this kind of The situation will not change with the advent of the digital age.

Fiat money is actually one of the basic means for the government to raise funds, control resources, and regulate the economy, so the right to issue currency is crucial. Everyone also sees clearly that by grasping the right to issue currency, it is easy for a government to raise funds and implement macro-control. In short, it is to regulate the economy through monetary policy, and to inject liquidity into the market through the central bank in times of crisis Thus maintaining financial stability.

Why can there be private currency issuance in the past? Mainly because the past economy was spontaneously regulated. With the rise of universal suffrage and organized guilds, the cost of spontaneous economic regulation has become greater. At this time, centralized macro-control by government departments and central banks is required. Monetary policy is one of the most important means of macro-control, and currency issuance is the basis for central bank regulation. You may remember that after the Libra coin appeared, there was a comic, and the image in the middle of the US dollar was no longer Washington, it became Zuckerberg. This means that if Libra coin is really widely used, the functions and powers of the Federal Reserve may be affected considerably, so this comic is actually very symbolic. Especially after the 2008 international financial crisis, this need to regulate the economy through monetary policy has become even greater, because the economy continues to be in a doldrums. In this case, the role of the central bank is even more important. In the future, it is difficult for us to imagine that if private digital currencies further weaken the status of fiat currencies and weaken the role of monetary policy regulation, it will actually be very detrimental to the stability of economic development of.

Private digital currency is difficult to solve the problem of trust, so it cannot be widely used. If the folk digital currency is generated by an algorithm and there is no central issuer behind it, it is through an algorithm who maintains the stability of the folk digital currency and what the source of its value is. It is doubtful. For example, Facebook and its partners are private organizations. After all, private organizations have to pursue the maximization of profits, so when there is a conflict of interest with the public, their behavior may change, which will cause the public's trust in it to decline. This time Librain has been questioned a lot. In fact, it is largely because Facebook did not do a good job in protecting the privacy of customers because of misuse of customer data. It has questioned Facebook itself, so it is also the Libra plan. Disadvantage, so from the perspective of trust, it is difficult for private institutions to solve this problem.

It is difficult for private currency to meet the needs of promoting economic development and maintaining financial stability. As everyone knows, in order to maintain the needs of economic development, the supply and supply of money should be flexible. It should be adjusted flexibly with economic development. When a crisis occurs When the liquidity of private institutions and financial markets suddenly dried up, a unified institution such as the Central Bank must provide liquidity to the market. In this case, if the private digital currency occupies a dominant position, it is difficult for the private currency to play such a role, so it is difficult to adapt to the needs of modern economic development and financial stability.

To sum up, I personally think that even if the private crypto digital currency gets a certain development in the future and it will play a certain degree of currency function, it will be difficult to replace fiat currency. This is my basic judgment. The future should still be fiat currency competition, but fiat currency competition may have two characteristics related to digital forms: one is the digital stable currency, if some fiat currencies are based on the US dollar and the euro as a preparation for issuance, they are stable In fact, the digital currency is still the government, and the basis of trust is still fiat money. That is to say, although it is a private institution, the basis of trust is still the state and fiat money. The second is direct competition between official digital currencies or digital currencies of the central bank. As you know, the People's Bank of China is developing legal digital currencies, and some other countries are further intensifying related work. In the future, we can expect that in the digital age, currency competition is basically The competition in fiat currencies will be more digital and worthy of further attention.

The above is my report. Please criticize and correct the inappropriateness.