On June 18, 2019, Facebook, a social giant with 2.7 billion global users, launched Libra, a cryptocurrency stabilization currency project, and attracted the support of dozens of giant companies with the intention of creating a new global financial system. This is followed by close attention from the central bank from the United States to Europe to Asia. Central banks have expressed concerns. As one of the first countries in the world to carry out digital currency research, the People's Bank of China is also concerned about the potential impact of Libra. The blockchain and cryptocurrency communities are also questioning the Chinese central bank's digital currency and the central bank's position on Libra.
On July 8, 2019, the inaugural meeting of the "Digital Financial Open Research Program" was held in Beijing. This program was jointly initiated by Peking University Digital Finance Research Center, Ant Financial Group Research Institute, Shanghai Jiaotong University China Economic Research Institute, Zhejiang University Internet Finance Research Institute, and China Influential Finance Research Institute of China Renmin University to strengthen academics. The industry and the industry have deep exchanges and cooperation to jointly promote the academic research and practical development of China's digital finance.
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Director Wang Xin, director of the Research Bureau of the People's Bank of China and head of the currency management bureau, was invited to attend the meeting and delivered a speech. He not only introduced the views of the People's Bank of China on the central bank's digital currency, but also expressed his concern for Libra, expounding the impact of Libra on global financial stability, financial policy and financial system, and also proposed how the central bank should deal with Libra. .
The following is the content of the speech compiled by Babbitt (slightly deleted):
In 2014, under the vigorous advocacy of President Zhou Xiaochuan, the digital currency and the research and development of the central bank's digital currency began. Now that the Central Bank has officially approved the State Council, it is organizing market institutions to conduct research and development of the central bank's digital currency. This work should be said to start early, but whether we can continue to maintain a leading position requires us to do a lot of work.
The central bank's digital currency is defined as M0 in China and is a certain degree of substitution for cash. So this work also falls into the most traditional form of currency in which the IMF manages cash, and it also enters the most advanced form of digital currency. Therefore, we also feel that the pressure is very large, so it is also very urgent to cooperate with our industry, academia, financial community, and Internet companies to participate in relevant research.
Today, I mainly discuss from the perspective of the central bank on the international or some international organizations in digital finance, as well as the areas that the central bank is concerned about. Previously, digital finance was more of a kind of impact on payment. Everyone knows that Tencent, Ant Financial, etc. are making rapid progress in payment. Later, virtual currency, or digital assets, appeared. So everyone is concerned about whether it will have some substitution for currency. Of course, because of its price fluctuations and its inconvenience in trading, international organizations such as FSB believe that it has not been in a certain period of time. Really exerting the function of money, the impact on financial stability, and the impact on monetary policy, it does not replace the real currency to a great extent, so the impact on monetary policy is not very large, and the impact on financial stability is not very Big. Of course, some important issues have also been raised.
Libra turned out! Let us revisit the digital currency
With the birth of Libra's plan, this time everyone attaches great importance to it, because it claims to be anchoring a basket of currencies, to some extent solve the problem of trust and widespread use, because it has a lot of platform support. If Libra is likely to have a relatively large development prospect in the field of payment, especially in the field of cross-border payment, then if it is further used, will it be able to play more of the currency function? The problem is very big.
Libra may have a major impact on the monetary policy , financial stability , and even the international monetary system .
Libra's monetary policy: Libra may reduce the effectiveness of central bank monetary policy
If virtual currency can replace traditional currency to a greater extent, the central bank is mainly aimed at the operation of traditional currency, of course, the effectiveness of its monetary policy will certainly be reduced. Especially Libra, everyone is very concerned, if you take advantage of the participation of a large number of platforms on its platform, there are a lot of application scenarios, if it is widely used. Some people even think that at a certain stage, it depends on a package of legal coins for credit support, but whether it can gain the trust of the market itself, so that it will have more and more value storage, even used as credit. It may have the function of currency creation, and it will have a greater impact on monetary policy. Of course, this is a very controversial issue.
Now we are in the digital currency of the central bank. If we create the central bank’s direct issuance of the central bank’s digital currency, as we are trying to do now, the central bank is actually doing something like the Bank of England, the Bank of Canada, and the central bank of Sweden. Related research and experimentation, but the details are not very clear.
If the central bank directly issues the central bank's digital currency, of course, it is the direct legal currency, that is, the renminbi . In this case, it helps the central bank to pay for the function. In this case, can it deal with the impact and impact of the current virtual currency? Will re-in the retail sector in terms of payments lead to some new changes in the payment format? It can also reduce the impact of cryptocurrencies on fiat currencies. The effectiveness of monetary policy is also eager to be sustained.
Of course, this depends largely on whether the central bank's digital currency is interest-bearing . If it is interest-bearing , it can adjust the interest rate to make it easier and easier to achieve the central bank's monetary policy intention. At least one point, in the current zero-interest rate limit in many countries and regions in Europe and the United States, if the interest rate is very low, or even negative, it may transfer to cash. In the case of central bank digital currency, cash has become less and less, and this transfer is hard to come true. Even if you pay interest to the central bank's digital currency, it is clear that the realization of the central bank's policy intentions is of great benefit. There are also some international scholars who have vigorously advocated and put forward policy recommendations in this regard.
To put it simply, from the perspective of our policy, I personally think that at least in the near future, we need to consider several issues in depth. These have just been mentioned. In order to promote the research and development of the central bank's digital currency, we have set up a central bank digital currency research institute, and also cooperate closely with the local government in Shenzhen and other regions, and also carry out systematic development.
Libra's financial stability: increased risk of financial disintermediation, bringing regulatory arbitrage risks
The impact on financial stability is more concentrated in several aspects, which may increase the risk of financial disintermediation and bring the risk of regulatory arbitrage. Because many of our institutions engaged in digital finance are not fully under current financial supervision, different regulatory agencies and different countries have different regulations, which will result in regulatory arbitrage or regulatory Blank, these may bring risks and spread. In particular, the issue of BigTech is also being discussed internationally. It is the problem of the technology giant. In fact, it has become an insurmountable example. Therefore, it will have a direct impact on financial management and systemic financial risk prevention.
Financial technology may be more concealed, destructive, and systematic. While seeing its benefits, everyone should pay enough attention to many areas of its rapid development. There is also a mutual strengthening of data risks and information security risks.
Libra's approach to the international financial system: the coexistence of legal digital currencies and a few digital stable currencies?
Everyone will guess how much the dollar will play behind Libra. Is it a package of anchored currency movements that essentially anchors the dollar? In the process of the United States, if it is said to eventually form a kind in the digital domain, it is virtual. If the realm of money is closely related to the US dollar, then the international monetary system may form a coexistence of the former legal currency and the digital currency with the US dollar as the core, but in the end it is likely that everyone thinks it is only A boss, that is the dollar, the United States. If this is the case, it will bring a series of problems not only economic and financial, but also a series of complicated issues in international politics and political economy. So this aspect is much broader than the dimensions discussed by everyone two months ago.
First of all, about the encrypted digital currency, especially the stable currency represented by Libra. Because the past bitcoin fluctuations are too large, the focus of everyone's attention is now the first stable currency. Especially Libra, will it form a pattern of coexistence of legal digital currency and a few digital stable coins? Of course, from the very beginning, it may be a situation of squad, but in terms of the use of money, it should eventually be in a relatively fast time, through market elimination, or through the government’s intentional influence, it should be used as a payment tool or In terms of money, because it has the externality of the network, it can only exist with very few payment instruments or currencies, so as to reduce the cost of market transactions. Everyone knows that behind the currency is interest, right, politics, international politics, and diplomacy. So if you say a payment instrument, even if it plays a monetary function to a considerable extent, it will inevitably impact the legal currency. The regulation of an international currency, the regulation of finance, and even all aspects will have a direct impact . Therefore, on the one hand, in the development of science and technology, it may make many restrictions on the past and the limits of the industry, which may not exist in the digital age. From the perspective of the externality of the network, the less the tools or currency to pay, the better, so it is convenient, this is the inherent needs of the market itself.
But we are still continuing under the big pattern of a sovereign country, and now there is still a period of time in the future. Everyone can see that there is some stagnation in globalization, and even some reversal in some aspects. Policies, closed policies, etc. are emerging. Can it be in the field of currency, the most important financial field, involving rights and national sovereignty? It can open up to the so-called international currency or super-sovereign currency. This is a big question mark, but some kind of conflict between technology, market, and national sovereignty will exist for a long time in the future.
What should the central bank do in the face of Libra invasion?
1. Launching a central bank digital currency or something like Libra?
Next, how do we deal with Libra? I believe that everyone will have different ideas, such as strengthening the introduction of the central bank's digital currency. For example, countries also support the issuance of their own things like Libra to deal with the challenges of international payment, which is also worth considering. Even the IMF jumped out. Of course it was an idea two years ago, but it was re-raised by everyone. For example, the IMF issued a super-sovereign digital currency, which is worthy of attention.
2. Explore digital finance to better support the development of the real economy
This is also an important research area of our platform and continues to deepen in our inclusive finance. In terms of digital inclusive finance, how can we strengthen our strengths and cope with external challenges when we have a good foundation.
3. Improve the framework of the financial technology regulatory system, whether Libra is allowed to be used domestically, and whether domestic companies are allowed to issue Libra's Chinese digital currency.
From the perspective of our regulatory authorities, there are a large number of practical issues that need to be studied in the development of regulatory technology. Apart from being big and big, it is impossible to fall because it is a systemic financial risk issue. For example, a very real problem:
After Libra appeared, did you allow Libra to be used in China? There are more and more voices on the market. In the past few years, we have adopted a very strict attitude towards virtual currency and virtual assets.
What kind of attitude and strategy should I adopt after Libra? Even if it is in our national government, if we support our institutions, of course, I am talking about an idea, because even Libra itself is only a plan, but we can conduct academic discussions and deductions.
If we also support our organization, we have very good foundations and conditions, and we also issue a Chinese version of digital currency like Libra . What should its application be? It is mainly used for international relations with Libra. Whether the field is used for competition, or whether it can be widely used in China, how it affects our current RMB. Of course, one thing is certain. Our traditional cash is definitely getting more and more reduced. My energy may shift from physical cash to digital cash. This is a huge challenge for me. It is also interesting and challenging for all of you here. Question.
4. Strengthening the construction of digital financial infrastructure
There is also the strengthening of the construction of digital financial infrastructure. Because it involves a lot of technical issues, such as privacy protection, the security of financial infrastructure, and so on. 5. Strengthening international collaboration in the field of digital finance
The last point is very important, how to strengthen international coordination and cooperation in the field of digital finance. In this respect, our industry and academic circles have played a very good role, such as high-level dialogue with the IMF. In fact, there are more and more discussions on the platforms of international financial policies such as BIS, IFM, etc. On these platforms, we especially need to send out the voice of China as soon as possible. The voice of China does not necessarily fully represent the voice of the government. There should be a lot of important market voices and folk voices. In this way, we can better safeguard China’s interests in the discussion of relevant international policies, the formulation of rules and standards, and even the competition for genuine products and services. Promote the development of our digital finance. In the end, it will better support the real economy and better prevent financial risks.
This is the brief content that I reported to you today. It is very comprehensive and not very thorough. If you are not appropriate, please criticize and correct. Thank you.