Opinion | The first year of the central bank's digital currency, and the sovereign and non-sovereign endorsed digital currency game framework is not yet complete

Source: China Business News

Editor's note: The original title was "The Era of the Digital Currency of Fiat Currency and Digital Currency of Illegal Currency Has Arrived"

With the development of information technology and the evolution of technologies such as mobile Internet, trusted and controllable cloud computing, terminal secure storage, and blockchain, payment methods have changed dramatically around the world. The development of digital currencies is affecting currency issuance and monetary policy. Bring new opportunities and challenges. In particular, the advent of Facebook Libra in 2019 triggered global digital currency competition, and central banks in various countries also stepped up the pace of research and development of central bank digital currencies.

In the view of Yang Fan, a member of the central bank's blockchain financial expert group and co-chairman of the Zhongguancun Blockchain Security Research Institute, Facebook's 700 million customers are enough to shake the foundation of the operation of any country's central bank and its fiat currency. Therefore, countries have accelerated the introduction of central bank digital currencies pace of.

Many people in the industry define 2020 as the "first year of central bank digital currency." Yang Fan told the reporter of China Business Daily that the era of the big game between digital currency of fiat currency and digital currency of illegal currency has arrived.

"Can't let the private digital currency develop disorderly"

Countries around the world have shown interest in central bank digital currencies, but no decisive central bank digital currency has yet emerged.

According to foreign media reports, the latest survey report jointly issued by IBM and the International Monetary and Financial Institution (OMFIF) shows that the first central bank digital currency is expected to emerge from a small economy within the next five years and respond to a specific policy with a clear purpose aims. The survey, which began in July 2019 and lasted three months, involved central bank officials in 13 advanced economies and 10 emerging markets. Among them, 73% of the respondents expressed their support for the central bank's digital currency, and believe that in some cases, the central bank's digital currency will be a good substitute for cash.

Yang Fan said that the reason for the introduction of central bank digital currencies in various countries is that private digital currencies use a series of new technologies, which have a strong penetration of the financial system and even have an impact on modern economic and financial operations. Therefore, in order to maintain the stability of the monetary system and the entire financial system, the monetary authorities must use the same or even more advanced technologies and designs to study and issue digital currency of the central bank. If the private digital currency is allowed to develop in an unordered manner, this will have a serious impact on the monetary authorities' policy regulation and the economic and financial system. In addition, the sharp reduction in cash is another positive reason for the central bank to issue digital currencies.

Yang Fan pointed out that with the advancement of technology and the growing role of FinTech in the overall financial framework, the emergence of central bank digital currencies will have a significant impact on monetary policy and the stability of the financial system. In addition to the technical assistance of the central bank's digital currency issuance, it also needs to have a sufficient framework to ensure governance and risk management to ensure its healthy development.

"The game framework is not yet complete"

Regardless of the legal digital currency endorsed by the sovereign, the private digital currency endorsed by the private sector, and the autonomous digital currency endorsed by the algorithm, it will face more equal competition than the real world. The specific needs of money are likely to be abandoned or be disadvantaged.

Yang Fan believes that the current central bank's digital currency game framework is not complete, and there are several games.

First, the game of monetary policy. Private digital currency further weakens the status of fiat currency and weakens the role of monetary policy regulation, which is actually very detrimental to the stability of economic development. Should the central bank's digital currency serve the national monetary policy, or the global monetary policy, or the pure monetary stability policy? It is worth considering what options the central bank digital currency provides for monetary policy.

At the same time, fiat currency and illegal currency digital currency are both virtual currencies, and there are different algorithms and games. Digital currencies are issued by computer algorithms, so the issuance of private currencies such as Bitcoin is not determined by the central bank, but ultimately by social consensus. Whether the central bank's algorithm for creating digital currencies can stabilize the value of fiat currencies remains to be explored.