Analysis of CBDC International R & D (3): Who will master the "Adamian" of CBDC?

Babbitt Note: This article is the third part of "CBDC International R & D Dynamic Analysis". Click to read the previous article in the series:

Analysis of CBDC international R & D dynamics (1): Seven giants form a group, "synthetic hegemony CBDC" will be born?

Analysis of CBDC's international R & D dynamics (II): Thailand and Hong Kong join hands to open up the "second pulse of Rendu"

The story of the Tower of Babel in the Bible Genesis tells us that the pursuit of paradise caused the language to split:

Genesis 11: 6 The LORD said, "Behold, they have become the same people, they all have the same words. Now that they have done this, there is nothing that they will do in the future.

Genesis 11: 7 We went down there, to distort their accents and make their words incomprehensible to each other. " Figure 1 Tower of Babel

It is said that at that time, all human beings spoke the same language, "Adamian". Since the outbreak of Jehovah, all kinds of languages ​​have appeared in the world, and there are still more than 5,000-7,000. With a wide variety of languages, while presenting cultural diversity, it is also necessary to erect barriers between various cultural exchanges, increasing the cost of dissemination and communication.

CBDC is a future currency form. As a new type of value expression, transmission and conversion tool, if a recognized "Adamian language" cannot be established between countries at the beginning of creation, it can be imagined that CBDC will be on the road to future development. Full of bumps. Recall that in the 1G era that mobile communications has just emerged, various countries and regions use different standards. Japan alone has more than four simultaneous standards. Mobile devices made in various countries cannot be used universally, and international roaming cannot be achieved.

The historical lessons of mobile communication development should be kept in mind. However, CBDC is not only a question of the harmonization of technical standards, but also involves monetary policies, payment standards, and regulatory mechanisms in various countries. The development of CBDC should focus on the unification of design rules from the beginning.

1. What are the characteristics of the design rules of CBDC ?

(1) The design rules are not compulsory, but should be based on the consensus reached by the monetary authorities of various countries.

Similar to all other international norms or standards, the design rules of the CBDC should not be mandatory, and should be a framework based on the common recognition and agreement of the monetary authorities of various countries. Specific standards are set by the monetary authorities of each country, but countries should fully communicate and negotiate through various channels such as academic conferences, industry summits, and industry exchanges to eliminate fundamental differences. Based on consensus, existing or new International organizations are responsible for coordinating communication, conducting final assessments, and creating a unified design framework.

(2) The problems to be solved by the CBDC should be determined and its application scenarios should be defined.

With the prosperity of electronic money and mobile payments, why should monetary authorities in various countries turn to the development of CBDC? First of all, it is necessary to clarify the purpose of creating a CBDC and what problems to solve. The requirements of different economies may be different. For example, domestic non-cash settlement methods in developed economies are more compatible with cash use. The urgent desire is to value the application of CBDC in large transactions (such as securities settlement and interbank transactions) and cross-border payments. Emerging market economies may pay more attention to the application of CBDC in retail payment, and consider domestic payment efficiency, payment security and financial inclusion as the "very important" motivation for issuing CBDC (BIS, 2020).

In general, improving the efficiency of payments, expanding the coverage of inclusive finance, and resolving the pain points of cross-border payments are the main visions for countries to create a CBDC.

Starting from the goal, the application scenarios of CBDC are roughly divided into domestic retail payment and large-value payment, and international cross-border payment.

(3) The main design elements of the CBDC should be clarified .

The difference or comparison between CBDC and the current tangible and electronic money should be defined by formulating its main design elements. Authorities, experts and scholars from various countries have discussed the research in this area, including the following aspects:

Regulations on the identity of CBDC users: Whether retail CBDC is open to foreigners and tourists, such as the "Sea Urchin" digital currency launched by the Central Bank of the Bahamas, the holder can only be a domestic resident. Whether the wholesale-type CBDC is open to foreign central banks, commercial banks, non-bank enterprises, investment funds, stablecoin suppliers or important financial institutions. In the Inthanon-Lion Mountain cross-border CBDC project jointly developed by Hong Kong and Thailand, participants in each country must have their own wholesale CBDC account in order to enter the cross-border payment system for transactions.

  • CBDC issuance mechanism: Whether the CBDC users directly open an account with the central bank or open an account indirectly, or store it in a digital wallet, whether to adopt a two-tier issue mechanism.
  • Anonymity of CBDC: Including the confidentiality of CBDC user information, account balance and transaction information, anonymity supervision and its legal policies, CBDC's objectives for transaction tracking, monitoring and anonymity, and the relationship between anonymity and transaction size.
  • Restrictions on the size of CBDC transactions and account balances. That is, the relationship between the customer's KYC and AML / CFT supervision mechanism and the transaction and holding limits.
  • CBDC's interest regulations: whether different types of CBDC calculate interest and how to formulate interest rate policies based on monetary policy and financial stability goals and risks.

2. Who will bear the unified creation of the design rules of the CBDC ?

From the current point of view, some international organizations and central banks have the conditions and possibility to undertake the formulation of the CBDC rules.

International Monetary Fund (IMF ) : The International Monetary Fund is a product of the Bretton Woods conference. It was established at the same time as the World Bank after World War II, and was listed as two major financial institutions in the world. Its role is to formulate and monitor exchange rate policies and currencies between member countries. Exchange rules, providing technical and financial assistance to ensure that the global financial system works properly.

Regarding the research and development of CBDC, before 2019, except for some IMF experts and scholars who have published research reports, there is no clear attitude. However, since the release of the Libra coin white paper, the IMF's position has become clear. The most famous position is the " Four Questions and Four Answers of the Central Bank's Digital Currency " (Tobias Adrian & Tommaso Mancini-Griffoli, 2019). Kai Zongmingyi proposed that the IMF's role in the present and future of the CBDC is reflected in three aspects: reporting on policy discussions, the IMF is investigating the possible impact of cross-border payment of the CBDC, as an organization responsible for monitoring the international currency exchange rate and the trade situation of countries It has natural advantages. It has rich information resources and has high authority on the research of the world economy and international finance. It has convened relevant parties to discuss policy options. The IMF has 189 member countries, covering the vast majority of the world. In most countries and regions, it is a regular activity for members to convene meetings and share information and experience; to help countries formulate policies, the IMF believes that it can continue to play its role in formulating international monetary policies and supervising implementation, and help Countries assess policies related to the CBDC and study alternatives to improve payment systems Method.

Bank for International Settlements (BIS ) : For a long time after its establishment, its members were mainly central banks of developed industrialized countries, and its business scope was limited to the European region. The rise of emerging economies and the development of economic globalization at the end of the 20th century have gradually evolved into global financial organizations. Although BIS's attitude towards the CBDC has been condescending, it has begun to use its platform to communicate the national authorities and experts and scholars' opinions on the CBDC. Discussion. Since 2016, more than 90 articles on the BIS website have covered the discussion of the CBDC. The well-known concept model of the Money Flower was proposed by the Payment and Market Infrastructure Committee (CPMI) of the BIS. , Availability and implementation technology to classify and define digital currencies.

Figure 2 Money Flower

Source: BIS

Since the end of 2018, two surveys have been conducted on the research and development of more than 60 central banks in the world, forming a relatively complete research framework, which reflects the changes in the understanding of CBDCs, the status of research and development, and future expectations by monetary authorities in various countries over the past year. In June 2019, BIS set up an innovation center and signed a business cooperation agreement with the support of the Swiss National Bank and the Hong Kong and Singapore Monetary Authority. One of the priorities is the development of CBDC.

World Economic Forum (WEF ): Its predecessor was the "European Management Forum", which was renamed the "World Economic Forum" in 1987. It gradually expanded from an academic forum to a non-governmental organization that studies and discusses problems in the world economic field and promotes international economic cooperation and exchanges. Official international organization. During the 50th annual conference in 2020, the organizer invited representatives of the European Commission, the Monetary Authority of Singapore, BIS, MIT, Facebook and other representatives to "create a credible and trusted digital currency-what trends will shape the digital currency The future? "For more than 40 minutes of discussion on the topic, the host announced in a high-profile: the central bank of various countries is not now the issue of not issuing a CBDC , but when and how . During the forum, WEF released a white paper "CBDC Decision Maker Toolkit". The toolkit was formed on the basis of soliciting opinions from central bankers, governments, international organizations and experts from more than 40 institutions. It became the first general guideline for the CBDC process and evaluation. frame.

Seven-line CBDC R & D team : Beginning in 2020, BIS teamed up with six major industrialized central banks in Canada and the European Central Bank to set up a research team. The BIS Innovation Center, CPMI, and the Deputy Governor of the Bank of England will be responsible for evaluating CBDC use cases; exploring the CBDC economy , Functional and technical design, including interoperability of cross-border payments. The role of BIS as an exchange platform for the international monetary and financial system is needless to say. It is worth emphasizing the Jasper-Ubin project of the Bank of Canada, the Stella project of the European Central Bank and the Bank of Japan, the e-krona project of Sweden, and some cross-border payments by the CBDC Exploration, and some of the retail-based CBDCs have completed proof-of-concepts, focusing on a wealth of talent, technology and experience. According to recent news, the April 7 team will hold an initial report meeting in Washington, U.S., with the meeting site in Washington, with the intention that the Federal Reserve will join it.

United States : Due to the status of the US dollar in the international monetary and financial system, we have the sole esteem and lack the internal and external motivation to implement the CBDC.

Figure 3 USD global status

Source: Mark Carney, Bank of England

Although not long ago, Federal Reserve Governor Brainer ’s relatively clear statement has shocked the industry, but recently Powell attended a congressional hearing and, under the aggressive pursuit of members of the parliament, still held the attitude of "I am the boss and I am afraid of", but only emphasized " There are many questions about digital currency in the United States that need to be answered. Network questions, privacy questions, and many other ways of operating "are clichés, and some general statements that" we are working hard, many efforts are in progress ".

However, let ’s not forget that in addition to the Federal Reserve, the United States has focused on the world ’s largest stablecoin issuer. It is also the location of Facebook, the founder of Libra. Recently, the “Digital USD” Foundation, set up by Giancarlo, a former US regulator. A stablecoin R & D plan was prepared to promote US digital dollar R & D in a building-transfer-like manner. The project idea is in line with the hybrid CDBC in IMF, WEF and other reports. In addition, the United States has the most voting rights in international financial organizations such as the IMF and BIS. (The United States owns 17.69% of IMF shares and has one vote of veto on major issues. BIS voting rights are related to subscribing for shares. Belgium, Germany, and France hold the most voting rights. , The United Kingdom, Italy, and the United States). Considering the above-mentioned several factors, it is not impossible for the United States to assume the establishment of the unified rules of the CBDC.