CITIC Securities Research: What are the deep meanings behind the central bank's digital currency acceleration?

Source of this article: CITIC Securities Research , original title "Bank | What are the deep meanings behind the acceleration of digital currency? Comments on media reports that the central bank's digital currency is being tested internally "

Author: Xiaofeifeiran Aerospace Bloomberg

The central bank's digital currency advances further, reflecting the needs of the digital economy and the demonstration of overseas central banks. The two-tier operating system issued by the central bank and distributed by commercial banks (payment institutions) is becoming clearer. The functions and positioning or reconstruction of payment institutions in the future: banks are expected to use digital wallets to accelerate the deployment of payment services; Brand institutions are expected to benefit; cross-industry and industry competition for payment and clearing institutions is expected to intensify.
According to Sina Finance, the central bank's digital currency DCEP has been internally tested in some banks. The first pilot areas include Suzhou, Xiong'an, Chengdu and Shenzhen.

The central bank's digital currency advances further, reflecting the needs of the digital economy and overseas central banks' demonstration

1) The need for the development of the digital economy: In October last year, the Central Political Bureau collectively learned blockchain technology, and the central bank ’s digital currency was in line with the dual directions of technological innovation and industrial reform proposed by senior executives. In addition, under the background of the epidemic, the development of the digital economy also Payment raises higher demand (in March, the National Development and Reform Commission's Digital Economy New Infrastructure Research Conference).

2) Overseas central banks are also accelerating the development of digital currencies: Since February this year, central banks such as Sweden, France, and South Korea have successively announced digital currency test plans or programs. Under the demonstration effect, domestic central banks also have momentum to accelerate.

The media reported that the bank's internal testing of the central bank's digital currency form is generally in line with expectations

Judging from the functional interface of this media report, it generally conforms to our relevant judgments in the special report "Special Topics of Banking Legal Digital Currency-Digital Currency Conjecture" (20191017):

1) Positioning and principle: digital replacement of cash, two-tier operating system. From the report, the use of the central bank's digital currency function requires the use of cash in the bank card account for digital currency exchange, so the central bank's digital currency can be understood as a digital replacement of cash. In addition, the report ’s internal testing of big banks also showed that the two-tier operating system of “Public Bank Issuance and Management – ​​Distribution by Major Commercial Banks and Payment Institutions” has strong feasibility for landing.

2) Wallet and account: APP independent virtual unit + mobile digital wallet. From the report material, the central bank's digital currency function relies on the "DC / EP personal wallet APP" to achieve. We expect that in the future promotion and use phase, the above-mentioned APPs may also be embedded and integrated into independent functional units of mobile banking apps or third-party payment apps. As far as the account system is concerned, considering the encryption attribute and controllable anonymity, the central bank's digital currency account may be separate from the existing bank account.

3) Payment action: compatible with QR code, NFC and transfer functions. From the report interface, the central bank digital currency wallet has scan code payment (ie, main scan payment), payment code (ie, scanned payment), one-touch (ie, near-field NFC payment), and remittance functions. In terms of user experience, it is expected to be basically the same as the current mainstream mobile payment methods. In addition, from the previous introduction of the central bank, it was speculated that the central bank's digital currency may support "dual offline payment" (the payment transaction action can be completed when both parties of the transaction are offline).

Wallet grading management function exceeds expectations, or cooperate with "controllable anonymity" function setting

 

It can be seen from the operation guide reported by the media that four types of wallets can be registered with the account name and password. After the ID card information is improved, it can be upgraded to three types of wallets, and after the ID card and bank card information are improved, it can be upgraded to type 2 wallets. Contacting the current bank's three-level personal account system setup, we anticipate that under different levels of wallet management, there will be differences in account functions and payment limits among wallets of different levels, especially the fourth type of wallet that does not require the entry of identity information, or the realization of "controllable anonymity" "Features.

Prospects: There is a possibility of going public online during the year, and the trillion scale may be in the medium and long term

1) It is expected that there will be technical feasibility and policy guidance for going online during the year: the test cycle of bank technology projects is generally between half a year and one year. In March, the central bank ’s annual currency gold and silver meeting also proposed "to unswervingly advance the research and development of legal digital currency." Therefore, we judge that it is more likely to push the central bank's digital currency to go online during the year.

2) In the medium and long term, it will reach a trillion scale: the current domestic M0 scale is 8.3 trillion (the growth rate has dropped to less than 5% year-on-year). As a partial replacement for M0, it is expected that the central bank's digital currency will be placed on the trillion scale, subject to customer habits The limitation of technical conditions depends on the scale of cash transaction replacement and the scale of electronic payment replacement.

Industry impact: It is expected to reconstruct the functions and positioning of various institutions, and will have a competitive relationship with electronic payment

1) Commercial banks : The use of electronic wallets in the future will increase the frequency of mobile banking APP usage, which will help to deeply intervene in the field of electronic payments;

2) Third-party payment institutions: The competitiveness of head institutions with central bank digital currency distribution functions will be further improved, and multiple licensed institutions are also expected to take advantage of mobile payment + value-added services to play a comparative advantage;

3) Existing payment and clearing institutions: the central bank's digital currency system (or the need for centralized clearing) brings increased cross-border competition, the opening of the clearing field brings intensified competition in the industry, and diversified operations may be in the medium to long term.

Risk factors

The central bank's digital currency is advancing at a slower-than-expected pace, and the payment industry's regulatory requirements are tight.