On December 29, 2020, Beijing’s first central bank digital currency application scenario landed in Fengtai Lize. In the Jintang Building in the west of Lize Bridge, in a coffee shop called Manmao Coffee, a digital RMB application scenario test was launched, and authorized consumers can already use digital RMB wallets to pay for various goods. At present, the digital RMB system has basically completed the top-level design, standard formulation, function research and development, and joint debugging and testing. After pilot testing in cities such as Shenzhen, Suzhou, Xiongan, and Chengdu, this is the first time that the application scenario has been piloted in Beijing. How to locate digital currency? Can digital currency promote the internationalization of RMB? What are the characteristics of future digital currency operations? How to regulate digital currency? Regarding the above issues, this article summarizes the views of some industry experts and IMI members as follows.
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How to locate digital currency?
Wang Yongli, academic committee member of IMI and former vice president of Bank of China, believes that the digital renminbi is the digitization of the renminbi. It is not a new currency other than the renminbi, but the mode of operation has changed. The digital renminbi displayed on the mobile phone is the wallet balance number. In terms of personal and merchant receipt and payment experience, it will not change much from the existing mobile payment (otherwise, the cost of user education will be greatly increased), and the digital currency is basically further optimized on the basis of mobile payment. The acquisition and use of digital renminbi need to download the unified APP of the central bank. Both the public and merchants need to download the central bank’s unified digital renminbi APP, and then exchange the digital renminbi with traditional renminbi through the exchange bank selected by the bank. The digital renminbi obtained can also be transferred to other banks or payment institutions to open a new digital renminbi wallet and use it. Whether this can enable the central bank to obtain the most complete digital renminbi user information and transaction data, which may bring about profound changes in the monetary payment operating mechanism is worthy of careful exploration.
Fan Xiwen, academic committee member of IMI and chief risk officer of the China-Latin America Cooperation Fund, pointed out that in the modern society with the rise of the Internet, the privacy surrounding exchanges is gradually disappearing. Shoppers’ transaction information is mastered by various market participants through Internet trading platforms, gradually changing the relationship between commodity providers and demanders, and with the transmission of this information, it triggers an integration of sales, pricing, and production. Series dynamic response. When these relatively private information is used by more and more market participants, it may not necessarily increase the well-being of consumers. But the central bank’s digital currency changed this situation. The digital currency launched by the central bank has formed a comprehensive control of information and a high degree of monopoly in the payment link that is indispensable in market transactions, which is unprecedented in history. The transaction behavior, wealth information, and even the transaction psychology and transaction expectations that can be derived from market traders will be controlled by the central bank, which constitutes the corresponding relationship between private and government in the ownership of information.
IMI academic committee member, such as the president and chief economist of the Institute of Financial Research Guan Qingyou, said that the digital currency DCEP is an electronic form of RMB. Although the central bank does not adopt blockchain technology, it is also centralized. Layer operations, but allow other participants to use qualified blockchain technology to participate in it. The biggest difference between digital currency and cash is that it is independent of the existing bank account system and uses a digital wallet to support transactions in which both buyers and sellers are offline, which is more convenient than existing third-party mobile payments. With the enrichment of future market scenarios, digital currency will be popularized in daily consumption and payment. The most typical feature of digital currency is controllable anonymity. On the one hand, it meets the residents’ normal anonymous consumption needs, realizes privacy protection, and avoids the big data of the platform. On the other hand, it allows the central bank to master first-hand data through big data. System supervision, perfect big data risk control, effectively reduce data improper use, overuse and other problems.
Can digital currency promote the internationalization of RMB?
E Zhihuan, academic committee member of IMI and chief economist of Bank of China Hong Kong, said that the central bank’s E-CNY provides a new impetus for digital development of the international use of RMB. From the connotation point of view, E-CNY is based on a broad account system, supports bank account integration functions, is equivalent to banknotes and coins, and has value characteristics, legal compensation, and can be used without the Internet, leading The current mobile banking payment methods will become an important support for taking the lead in the digital economy. The process of digital RMB internationalization will show the following characteristics:
First of all, digital currency is based on blockchain technology and has natural integration with the financial market. The use of digital currency will increase the speed of cross-border payment and settlement, and its security will be higher than that of traditional cross-border settlement. Secondly, digital currency-related technologies may subvert the traditional international settlement system model and weaken the influence of the US dollar in the international market, thereby providing an opportunity for the internationalization of the RMB to overtake. Third, the inherent characteristics of E-CNY are conducive to the international use of RMB. E-CNY is endorsed by the central bank, and its currency value is stable; it does not rely on bank accounts; the electronic nature of E-CNY reduces the cost of currency issuance while also making it easier to circulate. Regardless of whether there is a network or not, as long as an APP that supports the E-CNY wallet standard is installed, both parties can use mobile phones to conduct transactions; digital currency can also be traced to the source of transactions, which is helpful for anti-fraud and anti-money laundering.
Obviously, although the central bank’s digital currency focuses more on the mainland at this stage, the unique advantages of digital currency determine that the internationalization of the digital renminbi will be “a matter of course”.
Zhang Ming, a special researcher of IMI and director of the International Investment Research Office of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, believes that it is more difficult to promote the internationalization of the RMB by promoting the central bank’s digital currency. According to international experience, there are three main determinants of whether a country’s currency can grow into an international currency. They are ranked in order of importance. The first is the competitiveness of the currency’s financial market, including the depth, breadth and liquidity of the financial market. ; The second is the historically formed network of positive externalities and path dependence; the third is the country’s economic scale and the scale of international trade. Digital currency can indeed improve the convenience of cross-border payment, but the convenience of cross-border payment is by no means the most important indicator that determines the degree of internationalization of a country’s currency. Conversely, if the Federal Reserve introduces a digital dollar, it will further strengthen the dollar’s status as an international reserve currency. The reason is simple, because among the three important factors that determine the degree of currency internationalization, the financial market, positive externalities, and the scale of economic trade have all been realized in the United States. Therefore, if the convenience of cross-border payments in the U.S. dollar can be further improved at this time, the U.S. dollar The consolidation of the global reserve currency status is indeed a good thing.
What are the characteristics of future digital currency operations?
Wang Yongli pointed out that the positioning of the digital renminbi that the People’s Bank of China has been emphasizing—positioning at M0, no interest-bearing, and free exchange with traditional renminbi—may have serious problems. The positioning of the central bank is considered by many people that digital renminbi can only replace cash in circulation, and all payments are free, and all digital renminbi wallets are interest-free. However, if the digital renminbi is only limited to replacing cash in circulation, it must be strictly limited to exchange with cash. In fact, in the public beta, deposits are used instead of cash, which is not accurate. Moreover, if the digital renminbi is only limited to alternative cash, its scale will be very limited, because the current circulating cash is only more than 8 trillion yuan, which cannot be completely replaced. If this is the case, it will be difficult for the digital renminbi to meet the needs of the whole society, especially internationalization. At the same time, the digital renminbi can only be used for payment, and cannot be used for wider financial services such as loans and investment. It is difficult to play a greater role, and it will cause the long-term coexistence of the two operating systems of the digital renminbi and the traditional renminbi. Currency management may bring new challenges and troubles. In fact, the cash in circulation is the narrowest currency directly printed, released and managed by the central bank, and it is very necessary to list and manage it separately. However, even the currency issued by the central bank is not limited to cash. The central bank can also directly provide financing to commercial banks and directly inject their deposit accounts. Therefore, after the launch of the digital renminbi, whether it is positioned at M0, whether it can only be used for payment, and whether it will not accrue interest at all is a major issue that requires careful study. Correspondingly, even if the exchange between digital renminbi and traditional renminbi is free, it is not in line with business philosophy that digital renminbi is completely free for external payment.
Zhang Ming believes that in the future, different forms of digital currencies may present a pattern of competition with each other on a global scale. There are not only digital currencies of different natures like Bitcoin, Libra, CBDC, etc., but also central bank digital currencies of different types and currency calibers within CBDC, which may form a pattern of blooming flowers. It is worth noting that the “let a hundred flowers bloom” here does not refer to the international reserve currency. The international reserve system is destined to be the territory of a few currencies. In the future, there will be two currencies that can serve as reserve currencies, one is a national currency, such as the US dollar, euro, renminbi, etc.; the other is a stable currency, whether it is SDR, eSDR or Libra. Have the potential to become an international reserve currency because they themselves are still dependent on the credit of major governments. In contrast, the cryptocurrency represented by Bitcoin is more of a financial asset in nature and can only be regarded as a “digital currency” in a broad sense. In the future, competition for international reserve currencies will be very fierce, so it will not involve too many currencies.
How to regulate digital currency?
Fan Xiwen believes that the introduction of digital currency by the central bank constitutes the correspondence between private and government in the ownership of information. Such a reality will have a profound impact on many derivational relationships in society, and the many basic problems that it causes will have to be faced by society. First of all, after the central bank has mastered the relatively private information, are there any legal and administrative constraints that make the central bank use this information only within a certain range? Second, does the central bank have the power to share this information? And who is given the power of sharing? Third, if the central bank uses and shares these private information to cause damage to the well-being of traders, what methods can traders use to appeal and seek compensation? And what is the legal basis for the trader’s complaint? and many more.
