Editor’s note: The progress of the digital RMB pilot program is highly anticipated. It has been six years since the People’s Bank of China established a dedicated research team, and the digital renminbi has first revealed itself. It is currently being tested in Shenzhen, Suzhou, Xiongan, Chengdu and other places. The digital renminbi red envelope tests recently launched in Shenzhen and Suzhou have allowed tens of thousands of people to participate, and the digital renminbi footsteps are getting closer. There is no timetable for the official issuance of the digital renminbi, but before it actually comes, we need to understand or even read it through.
On the global central bank digital currency track, China’s central bank digital currency (DC/EP) has achieved outstanding results, both in the research process and in the internal testing point work.
According to Zhou Xiaochuan, the former governor of the People’s Bank of China, DC/EP is a two-tier R&D and pilot project plan, not a payment product. The DC/EP project plan may include several payment products that can be tried and promoted. These products were finally named e-CNY, or digital RMB.
According to the concept, the digital renminbi is a digital form of legal tender issued by the People’s Bank of China. It is operated by designated operating agencies and exchanged to the public. Based on the broad account system, it supports the loose coupling function of bank accounts and is equivalent to banknotes and coins. It has value characteristics and legal compensation, and supports controllable anonymity.
The digital renminbi is not a castle in the air, and its construction cannot be separated from a rigorous and sophisticated underlying framework. Penetrating the concept of digital renminbi, what kind of underlying design supports the circulation and operation of digital renminbi?
Issuance and circulation of digital renminbi: a two-tier operating structure
Digital RMB adopts a two-tier operating system of “central bank-commercial bank/other operating institutions”: the first layer is the central bank, and the second layer is commercial banks, telecom operators, and third-party payment network platform companies.
According to Fan Yifei, deputy governor of the central bank, the central bank plays a central role in the digital renminbi system and is responsible for wholesale digital renminbi to designated commercial banks and full life cycle management. Commercial banks and other institutions are responsible for providing digital renminbi exchange and circulation services to the public.
According to Wang Yongli, former vice president of Bank of China and chief economist of Shenzhen Neptunus Group, summarized the two-tier operating system, the central bank chose commercial banks with strong capital and technology as the designated operating institution, and the identification strength based on customer information was It has opened different types of digital renminbi wallets for digital renminbi exchange services. Designated operating institutions cooperate with other commercial banks and related institutions to jointly provide circulation services for digital RMB.
Digital renminbi can only be used for receipt and payment, not for issuing loans, so no interest is accrued. The central bank establishes a free digital renminbi value transfer system and financial infrastructure, and does not charge exchange and circulation service fees from the issuer, and commercial banks do not charge individual customers for digital renminbi exchange and redemption service fees. Refer to the current arrangements for banknote issuance, allocate issuance costs to designated exchange operating agencies, and establish a reasonable and effective incentive mechanism.
Wang Yongli pointed out that the Shenzhen pilot digital renminbi red envelope also reveals the context of this two-tier operation: the winners need to download the central bank’s unified “digital renminbi APP”, and then choose one of the four selected banks (industry, agriculture, China, and China Construction). ) Only by opening a “digital renminbi wallet” can you obtain and use digital renminbi. Mobile phones have become an important carrier of digital wallets, and QR code confirmation has become the main payment method.
Wang Yongli judged from this that the central bank can obtain information such as the name, ID number, and mobile phone number of digital renminbi holders through the “digital renminbi APP”, and establish a reference account for each holder on the digital renminbi platform to form a whole society In the “digital currency account” of the central bank, we have a comprehensive grasp of the full transaction information of digital renminbi exchange and circulation, and can conduct necessary monitoring and analysis.
Designated operating institutions also need to download the central bank’s digital renminbi APP and open an account, so that the central bank becomes a clearing center for digital renminbi and realizes interoperability. For every payment and receipt of digital renminbi, relevant information must be sent to the central bank and central bank. Can fully grasp all transaction information, while the digital renminbi wallet operating agency can only learn the information related to the institution’s wallet. If the digital renminbi wallets of both parties do not belong to the same operating agency, each operating agency cannot control both parties to the transaction From this, the “limited anonymity” of the digital renminbi can be realized.
Centralized management responsibilities of the central bank
In the two-tier operating structure, the digital renminbi emphasizes the centralized management of the central bank, and at the same time prudently selects strong commercial banks as designated operators to provide digital renminbi exchange services to the public.
Fan Yifei wrote an article that insists on the centralized management of digital renminbi issuance is of great significance: 1. Maintain the status of legal tender and currency issuance rights, and prevent currency issuance rights in the digital economy era from being bypassed; 2. Improve the efficiency of the payment system, improve the transmission of monetary policy, and at the same time , Is conducive to breaking retail payment barriers and market segmentation; 3. Maintaining financial stability. The digital renminbi adopts a controllable anonymity mechanism. The People’s Bank of China has full information, and can use big data, artificial intelligence and other technologies to analyze transaction data and capital flow to prevent and combat money laundering, terrorist financing, and tax evasion.
Zhou Xiaochuan pointed out that as the main body of the first-tier structure, the central bank needs to fully mobilize the enthusiasm of each subject through its own role design, so that the strengths of each subject can be fully utilized. Specific responsibilities include the following: First, maintain the currency value of the digital renminbi Stability; second, build reliable settlement and clearing infrastructure; third, the central bank has the responsibility to promote the interconnection of different payment products; fourth, the central bank must prepare emergency and alternative solutions in the dynamic evolution system.
Li Lihui, former governor of the Bank of China, believes that the central bank must maintain technological neutrality, and more importantly, maintain the central bank’s centralized management model to ensure the reliability of the monetary policy window mechanism and the efficiency of monetary regulation.
To maintain the central bank’s centralized management status, Fan Yifei also pointed out that the following points must be achieved: First, coordinate the management of the digital renminbi quota, and formulate unified business standards, technical specifications, security standards, and application standards. The second is to coordinate the management of digital renminbi information, record, monitor and analyze the exchange and circulation of digital renminbi by mastering full transaction information, and improve the central bank issuance system in the digital age. The third is to coordinate the management of digital renminbi wallets. On the premise of adhering to the unified recognition system and anti-counterfeiting functions of digital renminbi, based on the principle of two-tier operation, the central bank and designated operating agencies jointly develop the wallet ecological platform by means of co-construction and sharing. At the same time realize their respective visual recognition and characteristic functions. The fourth is to coordinate the construction of digital renminbi issuance infrastructure, realize interoperability across operating institutions, and ensure the stable and orderly circulation of digital renminbi.
100% full payment of reserves, no interest
In the two-tier operating system, 100% of the reserve needs to be paid in full, and no interest is calculated.
“The goal of my country’s digital currency issuance is to replace cash M0. At this stage, when commercial banks exchange cash, commercial banks need to pay 100% of the reserve in order to prevent commercial banks from over-issuing digital currency; also to enhance public trust in digital currency, reflecting The national credit behind the digital currency.” said Hao Yi, a postdoctoral fellow at Renmin University of China.
Guosheng Securities analyst Song Jiaji said that if 100% reserves are not used, it means that commercial banks may use the central bank’s digital currency to issue loans and distribute living funds, which may disrupt the existing financial system.
The non-payment of interest is also related to the positioning of the digital renminbi at M0.
Fan Yifei pointed out that according to Samuelson’s definition of public goods in The Pure Theory of Public Expenditure, legal tender is a public product. Therefore, the central banks will not charge fees for cash transactions, and the related design, production, dispatch, storage, return and destruction costs are all borne by the government. Digital RMB is also a pure public product. The People’s Bank of China implements a free strategy consistent with cash for digital RMB. The central bank establishes a free digital renminbi value transfer system and financial infrastructure, and does not charge exchange and circulation service fees from the issuer, and commercial banks do not charge individual customers for digital renminbi exchange and redemption service fees.
Based on the generalized account system: loosely coupled accounts
Compared with cash, digital renminbi will also bring users a new experience: no need to open an account in a commercial bank, just download the central bank digital wallet App and complete the registration to use online payment.
Sun Yang said that the central bank’s digital currency is based on the broad account system, that is, the central bank’s digital currency can be separated from the traditional bank account to realize value transfer, which greatly reduces the dependence of the transaction link on the account. It is a loosely coupled account system. Therefore, for users and companies, if they only use digital renminbi for micropayments daily, there is no need to go to a commercial bank or commercial institution to open an account. They only need to download a central bank digital wallet app and complete the registration to use the central bank digital currency to transfer money.
Sun Yang also pointed out that in addition to taking out the digital renminbi in the digital wallet or recharging it into the digital wallet, there is no need to bind accounts between users and users. Digital currency wallets are not bank accounts.
“The advantage of loose coupling is that it has high availability, is conducive to inclusive finance, and is of great significance to remote and mountainous areas in rural areas. As long as you have a legal document account that can mark your identity, it can be used as an account that carries a digital currency wallet.” Sun Yang said.
Li Lihui also pointed out that the digital currency adopts loose account coupling + digital wallet to realize end-to-end transfer and realize controllable anonymous payment. After foreigners arrive in China, they can also apply for a digital wallet to get the convenience of payment.
“The disadvantage is that there is still a risk of money laundering. Even if limit management is adopted for anonymous accounts, in the digital age, there are still technologies and technologies that control a large number of anonymous accounts for small transactions to achieve the purpose of money laundering.” Hao Yi said.
Sun Yang also believes that loose coupling puts forward requirements for security and risk control. Other account systems, such as social security, driver’s license, ID card, student ID and other documents, may not have the online risk control capabilities of financial institutions. This requires the central bank’s digital currency system to More technologies are deployed in KYC and risk control to ensure safety.
Song Jiaji pointed out that the ideal “loose coupling” is that micropayments do not need to be tied to bank accounts (large payments are required), but we expect this situation to be difficult to achieve because as long as different banks are involved, users need to be Only when the identity is marked can there be no disorder, and this mark is the concept of “account”.
Digital RMB Ecosystem
Mu Changchun, director of the Central Bank’s Digital Currency Research Institute, previously stated: “To build a digital renminbi ecosystem, it is necessary to explore cooperation models between designated operating agencies and other commercial banks and other commercial institutions.”
Fan Yifei said that in order to ensure that the digital renminbi is widely available and does not have a major impact on the existing financial market, it is necessary to give full play to the active role of other commercial banks and non-bank payment institutions in the digital renminbi system. As a designated operating institution, the commercial bank, together with other commercial banks and related institutions, undertakes digital renminbi circulation services under the supervision of the People’s Bank of China and is responsible for the management of retail links to realize the safe and efficient operation of digital renminbi, including payment product design innovation, scenario expansion, and market Promotion, system development, business processing and operation and maintenance services.
Since the beginning of this year, many Internet technology companies, payment companies, clearing institutions and other entities have successively joined the digital RMB project, mainly undertaking the research and development cooperation of application scenarios, and continuously enriching the digital RMB ecosystem.
So, how do these companies cooperate with operating agencies to participate in the digital RMB ecosystem?
On December 11, the lottery results of the Double Twelve Digital RMB red envelope event in Suzhou were announced. After the winners downloaded the digital RMB wallet, the six state-owned banks (the Industrial and Agricultural China Construction Communications and Postal Savings Bank), which are designated operating institutions for the digital RMB, also cooperated. Surfaced: Agricultural Bank, Postal Savings Bank, and Bank of Communications can only choose whether to connect to the JD APP; in addition to JD, the Construction Bank can choose whether to connect to Shanrong Business (the B2C shopping platform under the Construction Bank); the Bank of China except JD. , Can choose whether to connect to Bilibili; ICBC has the most partners, besides JD, there are Meituan Bike and Didi Chuxing.
Among them, JD Digital is the first technology company to cooperate with the six major banks of industry, agriculture, China, construction, transportation, and postal savings and access to digital RMB e-commerce platform consumption pilot scenarios. “In the digital renminbi pilot, JD.com provides technology + services + scenarios.” said Peng Fei, the person in charge of the digital renminbi project at JD.com.
He pointed out that JD Digital’s work in the digital renminbi pilot program mainly connects with three types of entities: first, the central bank and data research institutes; second, designated digital renminbi operating institutions (six major banks); and third, various businesses.
Among the digital renminbi wallets exposed this time, the digital renminbi App can push sub-wallets to the institutions that six banks cooperate with.
An industry insider told The Paper reporter: “This is a very interesting innovation, because in the current encrypted digital currency system, users can only control wallets through private keys, and each wallet is independent of each other. The “parent wallet-sub wallet” paradigm does not have the function of sub-wallet push. This new type of wallet paradigm will bring more application scenarios to DC/EP.
He also believes that the privacy protection of the sub-wallet confirms another function of the digital RMB: controllable anonymity. You don’t need to worry about using digital renminbi in normal economic life to leak personal privacy.
Digital RMB pilot area is expected to expand
On April 19, 2020, the relevant person in charge of the Digital Currency Research Institute of the People’s Bank of China stated that the research and development of digital renminbi is progressing steadily, and internal closed pilot tests will be carried out in Shenzhen, Suzhou, Xiongan New Area, Chengdu and future Winter Olympic scenes.
At present, the internal test points of the four pilot cities are all in progress, mainly focusing on small, retail, and high-frequency business scenarios such as retail, transportation card recharge, and catering.
In addition, Beijing, Shanghai, Hainan, Chongqing, Hong Kong and other places also mentioned the exploration of digital RMB.
On August 22, Shen Danyang, Vice Governor of Hainan Province, mentioned at the “2020 Golden Bull Asset Management Forum” that Hainan will actively strive for the application of legal digital currency pilots in the cross-border trade of the Hainan Free Trade Port.
On September 29, the Beijing Municipal Financial Supervision Bureau and the Economic and Information Technology Bureau issued a notice stating that they will actively seek support from the state’s pilot policies, and under the guidance of the People’s Bank of China, explore the central bank’s legal digital currency for data transaction payment and settlement in the Beijing Digital Exchange The application in, to create a payment and settlement system that meets the characteristics of data transactions.
On November 24, at the China-Singapore Financial Summit “China-ASEAN Financial Cooperation and RMB Internationalization” forum, Chongqing Deputy Mayor Li Bo said that Chongqing will actively strive to carry out digital trade and digital currency cross-border payment pilots, and explore The way of digital currency facilitates the cross-border use of RMB.
On December 4, according to the official website of the Hong Kong Monetary Authority, Hong Kong Monetary Authority President Yu Weiwen mentioned in the article “New Trends in Financial Technology-Cross-border Payments” that the Hong Kong Monetary Authority is studying the use of digital RMB for cross-border payments with the Central Bank Digital Currency Research Institute. Technical testing of international payment, and make corresponding technical preparations.
On December 10, the “Proposals of the Shanghai Municipal Committee of the Communist Party of China on Formulating the Fourteenth Five-Year Plan for Shanghai’s National Economic and Social Development and Long-Term Goals for 2035” was formally released, in which it proposed to “actively strive for pilot projects for the use of digital RMB.”
In view of the adequate preliminary preparations for the digital renminbi and the smooth progress of internal testing, Dong Ximiao, the chief researcher of the Zhongguancun Internet Finance Research Institute, suggested in “Clearing the Four Misunderstandings about the Digital RMB” to further expand the scope of the digital renminbi pilot test and officially launch the digital renminbi as soon as possible , To better meet the public’s demand for legal digital currency in the digital economy era.
He said that the pilot test cities will be expanded in an orderly manner. On the one hand, Beijing, Shanghai, Hangzhou and other cities with rapid development of digital economy such as Beijing-Tianjin-Hebei and Yangtze River Delta can be added. On the other hand, it can increase Western cities with relatively weak financial infrastructure such as Lanzhou, Urumqi and Lhasa.
