Interview with Qu Shuangshi, Development Research Center of the State Council: Stablecoins with specific issuers and anchoring certain collateral may become real "payment currencies"

Original: China Investment Reference

Author: Yang Haixia

Guide: stable coins that have specific issuing institutions and anchor certain collateral may become the real "payment currency". With the improvement of the regulatory system and technology, commercial stablecoins will gradually enter the right track

● Blockchain and cross-border payment

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● RMB internationalization and digital currency

● Future direction of digital currency

On October 24th, the Political Bureau of the CPC Central Committee conducted the eighteenth collective study on the development status and trends of blockchain technology, setting off a wave of public opinion on blockchain and digital currencies.

The People's Bank of China started to study digital currency electronic payment (DCEP) in 2014. Yi Gang, President of the People's Bank of China, pointed out at a press conference in September that digital currency research has made positive progress. Combined, the future goal is to replace part of M0.

What is the relationship between blockchain and digital currency? What is the future development prospect of digital currency? In the process of RMB internationalization, how can the digital currency DCEP help? Can it help China escape the long arm of the United States? Recently, our reporter interviewed Qu Shuangshi, deputy director of the Institute of International Technology and Economics of the Development Research Center of the State Council on these issues.

Blockchain and cross-border payments

"China Investment": As a basic technology, blockchain supports the future of digital currency? What is its relationship with digital currency?

Qu Shuangshi: The blockchain has the advantages of decentralization, openness, autonomy, anonymity, and tamper resistance, which can make the entire system information highly transparent, and its data stability and reliability are extremely high, which solves the point-to-point trust Problems and reduce transaction and operating costs. Digital currency is the most mature application of blockchain technology. At present, the underlying technologies of mainstream digital currencies such as Bitcoin, Ethereum, and TEDA are blockchain technology. At the same time, the application scenarios of the blockchain include not only digital currencies, but also fields such as "product traceability", "digital identity authentication", "judicial depository", and "secure communication".

In the future, the central bank's digital currency endorsed by the national credit will greatly improve the convenience of mobile payments and help achieve inclusive finance. Blockchain certainly provides a reference direction for the development of central bank digital currencies. However, whether the bottlenecks of the blockchain in performance, privacy protection, interconnection and other aspects can meet the application scenarios of the central bank's digital currency, especially the application scenario of RMB digital currency used by 1.4 billion people at high frequency, may require a question mark .

"China Investment": What is the current situation of cross-border payment supported by blockchain?

Qu Shuangshi: The decentralization, point-to-point transmission, and tamper-resistant characteristics of blockchain technology can provide instant, secure, and transparent services for cross-border payments. On the one hand, it promotes the technological innovation of the existing cross-border payment system and greatly improves This has impacted the speed of transactions, on the other hand, impacted the traditional international payment system SWIFT. At present, some countries and banks intend to withdraw from the SWIFT system. Some financial institutions and blockchain platforms have introduced cross-border transaction services that can replace SWIFT to a certain extent. There is also a need for such a centralized payment platform that is being discussed by all parties.

Some countries and banks are currently withdrawing from SWIFT. On May 23, 2018, the Banco Masventas Bank of Argentina stated that it will withdraw from SWIFT and begin to use the Bitcoin blockchain technology to solve international payment issues. In June 2018, the Russian Corporate Treasury Association announced that it will trial run the government-operated Masterchain blockchain platform with the Russian Central Bank in an attempt to replace SWIFT. In addition, Europe also intends to leave SWIFT's existing system. German Foreign Minister Heiko Maas has publicly stated that the European Union must establish a European payment channel independent of the US SWIFT. In addition to the strategic withdrawal of some countries and banks from SWIFT, more and more financial institutions and blockchain platforms are testing water and cross-border payments, and dismantling SWIFT global business systems with practical actions, such as IBM, VISA, Hong Kong version of Alipay, etc. Providing blockchain cross-border remittance services.

In this situation, SWIFT has launched gpi (Global Payment Innovation Service), hoping to achieve large-scale transformation of the cross-border payment system through blockchain technology. At present, SWIFT gpi has basically entered the landing stage. According to the information disclosed by SWIFT publicly, gpi has significantly improved the speed of cross-border payment. With SWIFT gpi for fast payment, many transactions can be completed in seconds. Although the current SWIFT's efforts to integrate blockchain technology with its traditional business have been small and effective, more and more people believe that future cross-border payments should be de-intermediate and point-to-point instant transactions. The centralized model practiced by SWIFT Should not exist, many blockchain platforms have stated that they want to replace SWIFT. In addition, as Russia, Japan, Germany and other big countries have started to withdraw from SWIFT and intend to make cross-border payments on their respective blockchain platforms, the question of whether cross-border payments still require a fixed global agent is being heatedly discussed. .

RMB Internationalization and Digital Currency

"China Investment": In the process of RMB internationalization, how can the digital currency DCEP help?

Qu Shuangshi: The digital currency DCEP has a boost to the internationalization of the RMB. An important sign of the internationalization of the renminbi is the significant increase in the scope and frequency of renminbi's global use. However, it is currently facing many obstacles. The global currency system dominated by the US dollar has become deeply entrenched. It is difficult to shake its position through traditional means. At the same time, the digital currency represented by Libra has also evoked a "digital" currency war. Not only does its anchored basket of currencies not include RMB, but its target users are the use of Facebook's various social software worldwide. Among them, there is a large number of potential user groups for RMB internationalization, and once launched, it will certainly inhibit RMB internationalization. Therefore, in the process of RMB internationalization, China must use DCEP to confront Libra and other digital currency players.

In addition, DCEP has a series of advantages, which are also important benefits for strengthening the expansion of the scope of RMB use. For example, the value of DCEP is only pegged to the RMB, and expanding the scope of DCEP is equivalent to expanding the scope of RMB. The advantages of DCEP (ie no matter how big the payment is, the other party cannot refuse to accept it), offline transaction capabilities, and high security (issued directly by the central bank, without the problems of commercial banks and corporate failures) will also Greatly improve the convenience of applications, and then expand the application base on the basis of solving the pain points of banknotes and other commercial digital currencies.

"China Investment": What are its trading settlement reserves and other functions?

Qu Shuangshi: DCEP is more focused on payment functions. Judging from the current position of the central bank, DCEP focuses more on "payment means" in the three basic functions of currency than "wealth storage" and "value scale". In terms of transaction settlement, DCEP has a unique advantage. It does not have the printing, transportation, storage and ATM machine manufacturing and operation and maintenance costs required for banknotes, which is convenient to carry and use. And DCEP can pay without network, surpassing the third party payment widely used now. In terms of reserves, the central bank currently does not pay interest on DCEP. Compared with sovereign currency debt, the value-added effect is worse, and its storage value depends on the credit level of the RMB.

"China Investment": What are the conditions to get rid of the constraints of SWIFT and CHIPS and the long arm of the United States? What else does DCEP need to do?

Qu Shuangshi: DCEP needs more efforts to get rid of SWIFT and CHIPS and the US long arm jurisdiction. SWIFT is currently the world's most important settlement system. It was established in 1973 and covers more than 200 countries. It has nearly 10,000 direct and indirect members. The daily settlement amount reaches 5 trillion to 6 trillion US dollars. 2000 trillion US dollars. CHIPS is one of the world's largest private payment clearing systems. It was established in 1970 and is operated by the New York Clearing House Association. It mainly clears multinational dollar transactions and processes more than 90% of international dollar transactions worldwide. Despite the shortcomings of these two major systems, such as backward technology, expensive fees, and low efficiency, they have formed a solid user ecosystem after years of development and iterations, coupled with the support of the US government, it is difficult to shake at present.

If DCEP wants to get rid of its restrictions and establish a new portal, it will also need to create a stable user ecosystem and attract more countries to participate. At present, the possible directions include the use of blockchain technology to achieve multi-party collaborative information processing in cross-border remittances, parallelization of serial processing between original institutions, and improvement of information transmission and processing efficiency; with the help of distribution agencies in the DCEP operating system In particular, it has introduced companies with large user groups overseas to expand user penetration capabilities, such as equipment vendors such as Huawei and DJI, third-party payments such as WeChat Pay and Alipay, and various social platforms such as Douyin.

At present, whether it is DCEP or our other high-tech companies, they are facing the influence of the long-arm jurisdiction of the United States. This requires cooperation in various fields such as finance, military, diplomacy, science and technology, and culture to counteract or counteract.

"China Investment": What is the prospect of it being a world currency? How to become a world currency?

Qu Shuangshi: DCEP adopts a two-tier system of commercial banks and central banks to adapt to the existing monetary systems of sovereign countries in the world. China, as a currency issuing country, has strong economic strength and basically has the conditions for world currencies. At the same time, DCEP can also save issuance funds, calculate inflation rates and other macroeconomic indicators more accurately, better curb illegal activities such as money laundering and terrorist financing, and facilitate foreign exchange circulation worldwide.

But to truly become a world currency, it still faces a situation of direct competition with the current world currency, the US dollar. This competition is not only from the economic and financial perspective, or from the technical perspective, but also from the military, geopolitical and other comprehensive aspects. Therefore, the process of DCEP becoming a world currency still depends on China's status in international affairs. The relationship is complementary.

The future direction of digital currency

"China Investment": What is the difference between DCEP and Liba?

Qu Shuangshi: First, the value reserve is different. The central bank's DCEP is the currency that anchors the renminbi and endorses national credit. Libra is an anchored basket of currencies. Each new currency issue must have reserve assets of equal value. Its reserve assets are composed of a basket of sovereign currencies and government bonds.

Second, the role of money is different. The role of the central bank's DCEP is to replace M0, and the role of Libra has not yet been determined. M0 may also be M1, M2, which may bring about various changes such as currency multiplier. (M0 refers to cash flowing outside the bank in actual economic life, including banknotes and coins; M1 refers to narrow money, M1 = M0 + corporate current deposits with banks; M2 refers to broad money, M2 = M1 + quasi currency. Quasi currency includes Time deposits, resident savings deposits, securities company customer deposits, housing provident fund center deposits, etc.)

Third, the technical structure is different. The central bank DCEP uses a two-tier structure. Libra does not use pure blockchain technology, but a hybrid architecture, so it cannot be considered a blockchain cryptocurrency in the strict sense.

Fourth, the promotion method is different from the issuer. DCEP is government action and Libra is business action. The central bank promotes DCEP through commercial banks. Libra is currently promoted by 28 association members, and will be promoted by 100 association members and authorized dealers in the future.

"China Investment": What are the future development prospects of various digital currencies such as Bitcoin?

Qu Shuangshi: As a representative of digital currency, since the birth of bitcoin, the value of the currency has risen all the way, and it has become an emerging global investment variety, which is regarded as "digital gold". However, because there is no endorsement by the central bank or other authoritative institutions, and the value fluctuates too much, digital currencies such as Bitcoin, Ethereum, and Ripple are unlikely to become widely accepted payment methods or "currency" in the future, but a highly speculative Digital assets.

At present, similar to Libra, stablecoins with specific issuing institutions and anchoring certain collateral may become the real “payment currency” . It will use blockchain technology to greatly simplify the process of cross-border payments, accelerate the speed of global transactions and increase the transparency and security of payments. The stablecoin system will develop in a more complete and popular way.

So far, U.S. companies have jointly launched five stable currencies with major global banks, and more large financial institutions and technology companies such as JP Morgan Chase, Wells Fargo, Wal-Mart and others have plans to introduce stable currencies. With the improvement of the regulatory system and technology, commercial stablecoins will gradually enter the right track, and digital currency trading platforms will also become compliant. For example, on September 23, 2019, Bakkt, a U.S. Bitcoin futures contract compliance trading platform, was officially launched.

On this basis, sovereign digital currencies of various countries are also coming out. Governments of several countries, such as Russia, Canada, China, and France, have publicly stated their plans to research and develop central bank digital currencies. The promotion of official institutions will gradually eliminate people's inherent impression of digital currencies.

"China Investment": Some people think that decentralization of blockchain technology is actually re-centralization. What do you think about this?

Qu Shuangshi: Blockchain technology can be divided into public chain, private chain (proprietary chain) and alliance chain according to the degree of centralization. Among them, each node on the public chain can join and leave the network freely, and participate in the reading and writing of data on the chain. When reading and writing, they are interconnected with a flat topology, and there is no centralized server node in the network. Bitcoin is the most mature and typical application of the public chain; while the write permission of each node in the private chain is under internal control, and the read permission is selectively opened to the public as required, which is suitable for the internal data management and Audit; each node of the alliance chain usually has a corresponding physical organization, and can only join and exit the network after authorization. All agencies and organizations form a coalition of related interests to jointly maintain the healthy operation of the blockchain.

According to the above classification, the higher the degree of decentralization, the higher the degree of trust and security, but the lower the transaction efficiency. Libra and the central bank's digital currency, which are currently being discussed, have higher requirements for transaction efficiency. Libra's association system is a typical alliance chain model, which can meet the requirements of efficiency, scalability, and transaction completion. The technical architecture of the central bank's digital currency is also a centralized system. The central node can efficiently verify the corresponding serial number on the digital currency. In order to avoid the double spending problem (that is, the problem of double payment of a piece of money), the digital currency redistributes a serial number every time the digital currency is converted.

It can be seen that, from the perspective of technical efficiency, and from the perspective of social structure and government governance, the application of centralized blockchain technology is relatively narrow. The alliance chain and private chain with centralized nodes are the blue ocean for future blockchain technology applications. This model will undoubtedly transfer the original centralized architecture to new nodes and realize "re-centralization". For example, blockchain applications such as Libra, which are dominated by technology and financial giants, may enable the transfer of some currency issuance rights to oligopoly technology companies.

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