Libra "forces the palace"

While the Libra cryptocurrency project released by Facebook is still hot, the development of the “regular army” central bank digital currency has also attracted widespread attention. After the deputy director of the central bank's payment and settlement department, Mu Changchun, pointed out that Libra could not do without the support and supervision of the central bank, on July 8, the director of the Central Bank Research Bureau Wang Xin was at the launching ceremony of the Digital Finance Open Research Project and the first academic seminar. It is said that Libra may have a major impact on national monetary policy, financial stability, and even the international monetary system. In this regard, the direct issuance of digital currency by the central bank will help to improve the effectiveness of monetary policy, and in the future, it will promote the development of central bank digital currency. In the opinion of analysts, although China's research and development of digital currency is relatively early, it is still necessary for the central bank to issue digital currency due to the fact that the current regulatory system is not yet sound, the rationalization of the interest rate transmission mechanism is still to be considered, and the public's cognitive understanding still has obstacles. Small areas first try first.

Libra is inseparable from regulation

The Libra cryptocurrency project has been widely debated and has drawn the attention of the People's Bank of China. Recently, Mu Changchun issued a document saying that Libra created a convertible digital currency that flows freely across borders. The emergence and development of such stable currencies, whether from the implementation of monetary policy or macro-prudential management, are inseparable from the support and supervision of the central bank, as well as the regulatory cooperation between central banks and international organizations.

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On June 18th, social media Facebook officially released the Libra white paper on the cryptocurrency project. Once the project was launched, it caused a hot debate around the world. Some people regard Libra as a super-sovereign currency, while others believe that Libra, which was born out of the world, will reshape the international monetary and financial system.

According to the Libra white paper, Libra is a combination of “money” and its corresponding financial infrastructure. Unlike existing stable coins that are only linked to a single legal currency equivalent, Libra is designed to be a stable currency linked to several legal tender currencies (a basket of currencies).

“Libra solves the problem of trust and widespread use to a certain extent, but as it is further used, whether it will play more of the function of money is a big problem for countries’ monetary policy, financial stability, and even the international monetary system. There will be a major impact.” On July 8, Wang Xin said at the “Digital Financial Open Research Program Launching Ceremony and the First Academic Symposium”.

He also pointed out that behind the currency are interests, power, international politics, and diplomacy. If a payment instrument, even the function of money, will inevitably impact the legal currency, it will have a direct impact on a country's currency regulation, financial regulation and other aspects. In the field of currency, which involves national sovereignty, it is necessary to open a big question mark to open up the so-called international currency and a super-sovereign currency.

From the perspective of how to deal with Libra's challenges in the next step, Wang Xin believes that it is to accelerate the launch of the central bank's digital currency, or whether countries also support the issuance of Libra-like digital currency to cope with the challenges of international payment. This is also a question worth considering.

Promote digital currency research and development

At the meeting, Wang Xin suggested that the direct issuance of digital currency by the central bank would help to improve the effectiveness of monetary policy and promote the central bank's digital currency research and development in the future.

He said that the digitization of the central bank's currency will help optimize the central bank's monetary payment function and increase the central bank's monetary status and monetary policy effectiveness. The central bank's digital currency (CBDC) can become an interest-bearing asset that satisfies the holder's reserve demand for safe assets and can also become the lower limit of bank deposit interest rates. Central bank digital currency can be a new monetary policy tool. First, the central bank can adjust the central bank's digital currency interest rate to affect the bank deposit and loan interest rate; the second is to help break the zero interest rate lower limit.

It is understood that the People's Bank of China is one of the first central banks to conduct research and experimentation on digital currency. Unlike the digital currency that most people understand, the digital currency issued by the central bank is actually a “digital legal currency”. Wang Xin pointed out that the central bank The digital currency is defined as M0 in China and is a certain degree of substitution for cash. It is difficult for cryptocurrencies such as Bitcoin to function as a currency. It can only be called cryptographic assets, and has limited impact on fiat currencies and monetary policy.

From the impact of the central bank's digital currency on monetary policy, Wang Hongying, dean of the China (Hong Kong) Financial Derivatives Investment Research Institute, told the Beijing Business Daily that the digital currency research issued by the central bank adopts blockchain technology, which can be traced back and tracked. Predictable is an important feature. This allows the central bank to have a scientific reference in formulating monetary policy, controlling inflation, and macroeconomic decision-making. The total amount of national currency and the real economy will be better.

Xiao Lei, a senior financial analyst, told the Beijing Business Daily that from the perspective of monetary policy, the current traditional monetary policy can only be adjusted in quantity and price, and it is difficult to achieve precise liquidity adjustment, such as targeted RRR reduction; Digital currency can track the specific flow of the entire currency, which makes monetary policy more targeted.

An analyst in Shanghai also pointed out that because the central bank's digital currency and banknotes have the effect of economic regulation, how to design a reasonable interest rate transmission mechanism is of great significance to the transmission effectiveness of monetary policy and the country's economic development. influences.

Small range first try first

In fact, although China's central bank attaches great importance to the study of digital currency, it has also carried out research on digital currency earlier, but innovation means breaking the tradition, and a series of problems and challenges are born.

Wang Xin said that the People's Bank of China attaches great importance to the research and development of financial technology applications. In 2014, it organized research on digital currency research. In 2015, the Financial Research Institute established the Internet Finance Research Center. In May 2017, the Central Bank Digital Money Research Institute was officially listed. In order to strengthen the research planning and overall coordination of financial technology work, the central bank established the Financial Science and Technology Committee in May 2017. With the approval of the State Council, the central bank is organizing market institutions to jointly develop DC/EP (payment instruments with digital currency characteristics).

Looking at the problems faced by the current central bank in issuing digital currency, Xiao Lei pointed out that with the new blockchain technology to achieve competitiveness, it is necessary to redesign the operation and management system of the legal currency. Once a more decentralized design is adopted, the cross-border flow of digital currency may become inevitable, which may be somewhat conflicting with China's current policy of gradually opening up foreign exchange and capital markets. “The central bank now needs to consider whether to create a digital currency, whether it is to use the domestic scene, or to be a global digital currency.”

Wang Hongying further told reporters that at present, the construction of China's digital currency laws and regulations system has not yet been put in place, and ordinary people still have obstacles to the understanding and understanding of digital currency. In addition, globalization is based on trade settlement and currency use. The currency issuance mechanism has not undergone fundamental changes. In the future, the development of digital currency still needs a small scope to try first. For example, the fifth set of RMB in 2019 may be 5 yuan. Experiments on digital currency based on banknotes. Only after accumulating a certain amount of experience and meeting the requirements of traditional economic and trade settlement and exchange equivalence requirements, can the digital currency be issued on a large scale.

Previously, on April 29, the central bank official website announced that the central bank is scheduled to issue the 20th edition of the 20th edition of the renminbi on August 30, 2019, of which the five-yuan banknote is absent from the new version of the renminbi. The central bank explained that in order to improve the anti-counterfeiting capability and circulation life of the renminbi, the five-yuan banknotes with lower denominations and smaller circulation were selected for the application research of related new technologies, and the issuance work was arranged separately. At that time, some analysts believed that the central bank may use blockchain and other technologies to study the anti-counterfeiting and flow direction tracking of banknotes on the study of 5-yuan banknotes, similar to an attempt of digital currency. (Beijing Business Daily)

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