Conjectures about digital wallets and central bank digital currencies

Source: Digital Fiat Research Institute

Digital wallet may become the carrier of central bank digital currency. The digital currency of the central bank can adopt a two-layer structure of a business implicit account system + digital currency wallet.

Take two paths of setting up a separate digital merchant management entrance or setting up an independent digital wallet app in the existing bank and third-party payment system to achieve the management of existing bank deposits and digital currencies in one account.

Opening of digital wallets

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Individuals and businesses open digital wallets through commercial banks and businesses. Similar to paper money, the mutual transfer between users does not require the binding of the corresponding bank account and the network, but the recharge or withdrawal of the digital wallet requires the corresponding bank account.

Digital wallet authentication method

Similar to online banking and third-party payment platforms, digital wallets also need to verify their identities for authorization, so digital wallet verification systems are required.

Currently widely used authentication methods include specific generated identification codes (such as online banking U-Shield), biometric codes (such as fingerprint identification, facial structure light identification), and traditional passwords.

The digital wallet verification system also needs the corresponding legal person identification code system and natural person identification code system. The legal person identification code may include business registration, administrative level information, and the natural person identification code may use more biometric codes such as fingerprint verification, facial recognition, and so on.

Digital wallet usage scenarios

The central bank digital currency belongs to fiat currency and has unlimited legal compensation, so the receiver cannot reject the central bank digital currency.

This means that as long as an electronic payment platform exists, you can use the central bank's digital currency for payment, instead of facing exclusive restrictions due to commercial competition like third-party payment platforms.

Similar to electronic payment, digital currency transactions should involve operations such as quick payment, scan code payment, NFC payment, and digital wallet transfer. At the same time, the "dual offline technology" enables digital wallets to complete value transfer without the need for a network. The scope of application is wider, and small retail may become a high-frequency application scenario.

Digital wallet transaction supervision

The central bank's digital currency transactions implement controlled anonymity. In order to prevent the anonymity of digital currencies from being used for money laundering or terrorist financing, when big data identifies specific transaction characteristics, data mining technology can quickly perform identity comparison and lock accounts. Real identity.

At the same time, digital wallet transactions will set certain restrictions in accordance with current cash management regulations, and set transaction limits and balance limits according to different levels of wallets. For example, direct exchange of large amounts of cash may require advance reservations.

This can reduce the risk of financial procyclical effects and reduce the crowding out effect of digital currencies on deposits.

Digital wallets may affect

Unlike bank deposits, digital currencies are bank off-balance sheet assets and do not affect the existing core business systems of banks.

After the direct connection is broken, third-party payment platforms such as Alipay are essentially paid in commercial bank deposit currencies. After the launch of DCEP, they will be replaced by digital RMB endorsed by the central bank.

The main changes are reflected in the changes in payment instruments and the increase in payment functions. Channels and scenarios will not change significantly.

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