Li Lihui: Legal digital currency can accurately regulate money supply


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The Shenzhen Digital RMB red envelope test came to an end, and 62,788 individual red envelope transactions were awarded, with a transaction amount of 8.764 million yuan. This means that China’s legal digital currency has made significant progress in the retail application. At the same time, global central banks are also accelerating the process of R&D and testing of digital currencies.

How will digital currency affect our financial system and economic life? On October 18th, Li Lihui, the former president of the Bank of China and the leader of the blockchain research group of the China Internet Finance Association, said at the second session of the 2020 high-level media high-level blockchain knowledge public welfare training class (chain media class) that one of the impacts is Eliminating cash will make daily life easier, and in fact will speed up the internationalization of the renminbi; second, eliminating intermediaries will make financial competition more adequate.

Four advantages of fiat digital currency

According to Li Lihui, legal digital currency has four main advantages: first, legal digital currency has the advantages of replacing cash and saving the cost of cash circulation, which may be the sixth edition of the renminbi; second, it can strengthen the public nature of the payment system. Promoting inclusive finance can allow more people to use this payment system; third, it can ensure the reliability of financial transactions; fourth, it can precisely adjust the money supply and strengthen the supply of money market circulation.

At the same time, the issuance of digital currency also has three potential risks. The first is that it will weaken the initial credit and profitability of commercial banks; the second is that it is more likely to trigger systemic financial risks; the third is that the balance sheet of the central bank will expand rapidly due to digital currency, and large deposits At the central bank, the central bank has the right to regulate, but it also has to bear more direct responsibilities.

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So, how will digital currency affect our economic life? Li Lihui explained that one of the impacts is to remove cash, which makes daily life easier, which will actually speed up the internationalization of the renminbi; the second is to remove intermediaries, which will make financial competition more adequate.

Li Lihui believes that the current legal digital currency is credible because of the government’s endorsement. If the digital currency issued by other institutions has to have five elements, it can be trusted: one is the trust endorsement of a public trust institution; The scale of customers with commercial value; the third is a reliable agency transaction and payment platform; the fourth is the support of auditable financial assets; the fifth is the market access with administrative licenses.

It is worth mentioning that although my country’s legal digital currency (digital renminbi) does not use blockchain technology in the retail scene, it does not rule out the possibility of using blockchain technology in cross-border payments in the future. Judging from the current digital currency research process of global central banks, there are also some countries that use blockchain technology.

Li Lihui believes that the current blockchain development is still in a bottleneck state, that is, the bottleneck of large-scale reliable applications. “my country’s blockchain technology research and development must be committed to breaking through the bottleneck of large-scale reliable applications, including privacy computing technology, authenticity supervision mechanism, smart contract technology, key technology, diversified technology platform integration, and application reliability.” Said that in recent years, China has done a good job in the application of blockchain patents, even surpassing the United States, but there is still a big gap in all the high-value basic fields of the bottom layer.

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Blockchain can build a digital wealth management market

From a technical perspective, blockchain can be defined as a distributed shared ledger based on peer-to-peer networks, consensus mechanisms, smart contracts, and encryption algorithms. From an economic perspective, blockchain can be understood as a “trusted, interactive, encrypted, and shareable value chain”. In Li Lihui’s view, blockchain is an integrated innovation of multiple technologies. From an application point of view, the application of blockchain technology has extended to many fields such as digital finance, Internet of Things, intelligent manufacturing, supply chain management, and digital asset transactions.

Take finance as an example. One is that it can build a distributed financial ledger with the participation of large, medium and small financial institutions; the other is that finance has relatively high requirements for reliability and security, and the alliance blockchain technology can build a multi-party distribution. The structure of the ledger can make things more efficient.

There is also the settlement scenario of cross-border payment. Under normal circumstances, the settlement scenario of cross-border payment is not complicated, but it may involve the illegal flow of funds across borders. Through the use of blockchain, it can provide regulators with A direct intervention channel can reduce the cost of the entire control and improve the efficiency of control. The application of these blockchains has achieved initial results. If blockchain + big data, blockchain + artificial intelligence are used to make supervision all intelligent, it is very helpful to save the operating cost of the entire society.

There is also a more typical application. Blockchain can establish a digital wealth management market. The future digital asset market may include four types of digital assets: one is the digitization of financial assets such as deposits, bonds, stocks, bills, etc.; the other is physical assets such as hotels, housing, cars, equipment, tools, attractions, etc. Become a digital asset, which is certified and priced in the market, and can be used to trade; third, the right to use digital cultural products such as games, music, film and television, writings, and lectures can also be certified and priced in the digital asset market, and Trading; fourth, through securitization arrangements, digital products that have the right to return and therefore have investment value can be traded on a share basis. This is a new form of investment.

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It is worth noting that there is a potential dark spot in the blockchain at the same time: an important trend in the blockchain is weak intermediation, or even disintermediation. It can be directly traded and no intermediary is needed. This is for the traditional financial industry. A major challenge. In order to develop the financial industry in the future, the positioning of the financial industry must be clarified under the new technical framework system.