Li Hui, executive dean of Firechain Technology Research Institute, Gu Yanxi, founder of Liyan Consulting, and Cao Jing, co-founder of AscendEX, conducted in-depth discussions on the development trend of CBDC.
Finishing: Roxe
Central bank digital currency (CBDC) has officially entered the international financial market, and many experts have regarded CBDC as one of the most important trends in shaping currency in the next decade. According to survey data released by the Bank for International Settlements, among 66 central banks around the world, 80% of central banks said they are studying digital currency technology, and about 20% of central banks said they may issue digital currencies in the next 6 years.
At present, the Bahamas, Uruguay, Ecuador, Venezuela, Thailand, and Cambodia have issued CBDCs. The central bank digital currencies of emerging market countries such as China have entered the actual testing stage. The global development of CBDC has entered the fast lane. The development and implementation of CBDC will affect the central bank. What impact will it bring, whether it can effectively deal with inflation, and what opportunities and challenges will it face? To this end, on April 21, Roxe Payment Network invited Li Hui, Executive Dean of Firechain Technology Research Institute, Gu Yanxi, founder of Liyan Consulting, and Cao Jing, co-founder & CEO of AscendEX (formerly BitMax), to focus on CBDC Haohan, CEO of Roxe Payment Network, served as the moderator of the meeting.
CBDC’s impact on the central bank
CBDC usually refers to digital currencies issued directly by central banks of various countries. “Although it is still unclear what kind of underlying technical basis central banks will use to support the issuance of CBDC, the development of encrypted digital currencies and Libra (now renamed Diem) is an important cause of the CBDC fire.” The founder Gu Yanxi said.
Initially, the Libra Association planned to issue a single stable currency based on a basket of fiat currencies. This plan caused a global sensation and also stimulated central banks to create their own CBDC solutions. However, the central banks of various countries are currently in the exploratory stage, and the study of CBDC mainly depends on what problems it can solve. Gu Yanxi believes that CBDC is mainly to solve two problems: First, how to improve the efficiency of cross-border transactions? At present, the high cost and low efficiency of cross-border payment have seriously hindered the development of cross-border trade. This is the primary problem that CBDC should solve at the moment. For example, the Libra stable currency is not only universal, but also can basically achieve real-time payment. Advantages of Libra. Secondly, how to deal with the opportunities brought by the emergence of digital assets? At present, digital assets are all generated on the blockchain. If you want to circulate on a global scale, you need a native digital currency that can support the docking with digital assets in terms of programming. The familiar Ethereum uses smart contracts for transactions. Especially with the development of DeFi, many problems can be solved based on stable coins.
“I think that a single central bank issuing CBDC alone cannot solve these two main problems. If the major central banks cooperate and issue a CBDC under the premise of maintaining the independence of their respective monetary policies and reaching agreement on the technology and issuance mechanism, the above can be effectively solved. The problem, especially in terms of the performance of cross-border payments.” Gu Yanxi added.
In this regard, Cao Jing, co-founder & CEO of AscendEX (formerly BitMax), and Gu Yanxi hold different views. He believes that the real problem to be solved by digital currency is not necessarily cross-border payment, but that people in remote areas have no bank accounts. problem. “At the same time, I don’t think that central banks will adopt uniform measures to issue digital currencies. Just as the EU adopts the same currency, it will cause big problems. Therefore, in the initial pilot implementation, central banks of various countries should issue their own CBDC, this is helpful for big countries to observe the effects of CBDC issuance, and then decide whether to follow up.” Cao Jing added.
Cao Jing analyzed that CBDC is not necessarily an encrypted currency. The core of the blockchain is distributed accounting. From the current development situation, there is no clear regulation that the digital currency issued by the central bank is an encrypted currency based on the blockchain. It may also be electronic money in the form of storage designed by the central government. Whether CBDC is a blockchain cryptocurrency, including whether Libra is a digital currency, and what form central banks will take, are still unconclusive.
“I think that the main pain point that central banks want to solve by launching digital currencies is the problem that most people in various developing countries have no bank accounts, rather than cross-border payments.” Cao Jing further analyzed, due to the high maintenance costs of the outlets. In many countries, especially in the remote rural areas of developing countries, there are no bank outlets. It is very inconvenient for people to deposit and withdraw money. Digital currency can solve the problem of unbanked accounts to a large extent. Many services can be solved online. . In addition, if the U.S. dollar is replaced by a digital currency, it will have a significant impact on the world. Therefore, large economies, including the U.S. dollar and the euro, are unlikely to start pilot projects from the early stage. Instead, they are some small countries with a relatively simple economic structure. It has developed rapidly on the digital currency track. Of course, there are also major countries like Japan. However, most of the pioneers of CBDC are small countries such as Iran and Venezuela, because for countries that cannot freely exchange foreign exchange, digital currencies have Help it break through some obstacles in reality.
“Indeed, the cost of trying digital currency to replace the original system is lower in small countries, just like China’s mobile payment instead of cash payment, and if the United States replaces credit card payment, it will not bring much benefit, and it will replace the original system. The cost of education is also very high.” Roxe Payment Network CEO Haohan also said.
Li Hui, executive director of the Firechain Technology Research Institute, believes that CBDC is a historical development trend. In the future digital world, whether to build a financial infrastructure that is more compatible with the digital world on the existing system is the key consideration for many central banks in the current design of CBDC. The purpose is to better control the flow of funds, and then better Carry out macro-control and implement some fiscal and monetary policies, including increasing the flexibility of monetary payment and reducing many unnecessary intermediate links. In March last year, the US economic stimulus plan was a good example. The reason why the digital dollar plan was chosen at that point in time was because digital currency payment was more efficient. Through the digital dollar, the US government can more efficiently distribute relief funds directly to the American people, without having to go through banks or payment companies. Not only the United States, but many countries have needs in this regard.
As a new thing, central banks of various countries are in the exploring stage. As to whether its underlying technology will adopt blockchain technology, whether it will be a retail CBDC or a wholesale CBDC, the practices of each country are different. Although some countries have launched CBDC, in fact they have not really done it. The reason is that the CBDC system has not been fully utilized. The development of CBDC will have a certain impact on the existing banking system. A successful CBDC design will not undermine the stability of the existing financial system, otherwise it will bring financial risks.
“As Dr. Cao said, the countries that tested CBDC before were actually some countries with underdeveloped economies or very high inflation, because they were worried that if China’s DCEP or the US digital dollar were developed, it might replace them. The domestic legal currency has caused their own sovereign currency to be severely impacted and affected. In addition, CBDC is a digital system based on technology, there will be some technical risks, and it needs to be tested and iterated continuously.” Li Hui added.
Can CBDC ease the dilemma of inflation
“Unreasonable design of CBDC may bring certain risks. Under the financial crisis, depositors may transfer their deposits to CBDC. Originally reliable deposit insurance can continue to prevent runs, but it is easier for CBDC to transfer money away. , Thereby triggering the risk of a run.” Haohan said: “In the digital world, fiat currency cannot be better circulated because almost every country’s fiat currency needs to pass through the domestic clearing and settlement system. For example, the United States uses FED-WIRE for local clearing and settlement, and China There are two sets of domestic and international clearing and settlement systems, which are isolated from each other and very frictional. For some countries with severe domestic inflation and international sanctions, the issuance of CBDC may be permitted as a possible solution for currency substitution to alleviate inflation, such as Turkey.”
Li Hui believes that CBDC is a payment method and cannot directly solve the economic problem of domestic inflation. The United States has previously watermarked a lot of money and mentioned in the report that it can use CBDC or digital dollars to distribute these funds to the people and enterprises, which will accelerate everyone’s expectations for inflation.
Cao Jing and Li Hui agree on the relationship between CBDC and inflation. He said that digital currency itself will not solve the inflation problem, but if digital currency is adopted on a large scale, it can help decision makers of various governments to formulate more refined monetary policies. From this point of view, CBDC can help alleviate Inflation can help.
“Whether it is the CBDC or the existing economic system, the key to whether inflation can be curbed lies in monetary policy, that is, whether it can truly control the issuance of currency in line with the issuance of GDP. If the total amount of money is constant, a deflationary economy will not lead to inflation. “Gu Yanxi said: “The CBDC itself will not have an impact on inflation. The key lies in the central bank’s monetary policy. Under the current circumstances, I think Bitcoin is the best tool to curb inflation on a global scale. “
Whether the CBDCs of various countries can be interconnected
“Currently, the development of CBDC is still in its early stages. It is difficult to truly realize the unification of global digital currencies, both from the technical and political levels. There is a high probability that there will be a public interface established by the major currencies of several major countries. CBDC in the future Development is not so much a technical issue as it is a political and commercial issue. It is still too early to talk about the need for integration and how to integrate it in the experimental stage.” Cao Jing said.
Gu Yanxi believes that it is very possible to reach a unified standard in terms of technology, and then countries can achieve interoperability after issuing according to their own monetary policies. Specifically, whether the central bank will adopt a “distributed” or “centralized” system and standard mainly depends on what kind of agreement the central bank will reach. Although the investment cost is relatively high, a unified technical standard must be feasible and operability is also achievable.
“I very much agree with Mr. Gu’s point of view. In the future, a set of global common standards will definitely be established to realize the interconnection and interoperability of CBDCs in various countries.” Li Hui said: “This standard is not only technical, but also includes a lot of business. Yes, based on a unified standard, they can exchange currencies more smoothly, including payment and other functions.” In fact, the G7 Group, G20, the Bank for International Settlements, the Financial Stability Board FSB, and the anti-money laundering financial action special work International organizations such as FATF have been discussing the future standards of CBDC very intensively. Just as cross-border payments are currently based on SWIFT standards, there will also be such an institution or organization specifying a set of standards for digital currency in the future. In addition, the current cross-border remittance is a bank-to-bank transaction. There are many banks in every country, and it is an N-to-N relationship. In the future, if each country has its own CBDC central bank digital currency system, it will become a one-to-one relationship. Therefore, CBDC can reduce a lot of intermediate redundant links in business for future cross-border payments and increase remittances. effectiveness.
The positive effects of China’s issuance of DCEP
At present, China’s share in the world economy is disproportionate to the share of renminbi in foreign exchange reserves of various countries. Although the internationalization of the renminbi has made great progress, as a non-freely convertible currency, it still restricts many countries from adopting the renminbi. The development of digital currency can enhance the international status of the renminbi. In addition, the promotion of the renminbi digital currency is also good for the unbanked in many parts of China, allowing more people to enjoy financial services.
“For the defense of the U.S. dollar, China, as the world’s second largest economy, has a GDP of about 75% of that of the U.S., and has a very strong resistance to U.S. dollar inflation. Therefore, the introduction of the digital renminbi provides China’s international The economic influence of China and the popularity of the renminbi have laid a good foundation.” Cao Jing added.
“I very much agree with Dr. Cao’s views on monetary policy.” Gu Yanxi said: “DCEP, as a new renminbi carrier, will definitely touch more users and application scenarios that cannot be reached by the existing renminbi circulation system, such as Dr. Cao. The unbanked people mentioned are indeed good for them. As for whether DCEP can resist the expansion of the dollar, in addition to monetary policy, it also depends on the degree of promotion of DCEP and the acceptance of the market on a global scale. factor.”
“The international status of the renminbi mainly depends on monetary policy and economic strength. Of course, it cannot be separated from some foreign policies. DCEP based on payment, circulation efficiency, and diversity can speed up this process, but at present DCEP is only being piloted in China. It will take a long time to use and invest internationally on a large scale. Therefore, in the short term, DCEP may not have any essential resistance to the current situation and can only play a mitigating effect. But in the long run, it can indeed accelerate the increase in the RMB International status.” Li Hui said.
Currently, all countries are rushing to push CBDC. Under the trend of digitization, CBDC, as an important supplement to the current underdeveloped payment and settlement system, can not only solve the existing cash management cost problem, but also promote the realization of inclusive finance, so that more people can enjoy more convenient, Safe, low-cost financial services.
