Zhou Xiaochuan, the former governor of the People’s Bank of China, delivered a keynote speech on “IT Development Promoting the Modernization of Smart Systems and Facilitating Cross-border Payments” at the “2020 Shanghai Financial Forum” on Sunday.
In his speech, he stated that the digital renminbi under test will not replace existing currencies such as the US dollar, nor will it pose a threat to the global monetary system. However, he mentioned that the ability of the digital renminbi to process payments and foreign exchange transactions in real time at the same time may change cross-border trade and support Beijing’s efforts to promote the internationalization of the renminbi.
He mentioned, “If currency exchange can be realized at the moment of retail transaction, and the transaction can be supervised…this brings new possibilities for interconnection.”
As the main advocate of China’s central bank’s digital currency plan, Zhou Xiaochuan said that the digital renminbi is not meant to replace globally recognized legal tenders such as the US dollar and the euro, which is very important.
He explained, “If you are willing to use it, the digital renminbi can be used for trade and investment. But unlike Libra, we have no ambition to replace the existing currency.”
Zhou Xiaochuan stated in his speech that China hopes to persuade consumers and overseas merchants to gradually accept digital renminbi payments instead of challenging the foreign exchange regulatory framework and currency system.
He said that China has learned a lesson from the reactions of all parties to Libra (now renamed Diem). Policy makers around the world are worried that it will disrupt the financial system and affect the country’s monetary sovereignty, so they have taken more caution against it. way of doing.
Zhou Xiaochuan said, “Some countries are worried about the internationalization of the renminbi. We cannot force them on sensitive issues, nor can we impose our wishes on them. We must avoid giving the impression of chauvinism in the People’s Congress.”
The following is the original speech:
Dear guests and delegates, hello! I am very happy to be able to participate in the 2020 Shanghai Financial Forum, and thank the organizer for the invitation. The theme of this conference is “Reform and Opening: Shanghai International Financial Center Construction under the Dual Cycle”. I think this topic is very important and very good. . I would like to take this opportunity to talk about the modernization of smart systems and the facilitation of cross-border payments through IT development.
First of all, we want to say that the development of technology has brought new opportunities and challenges to many business models. The modernization of payment systems and digital currencies are naturally also an area of great concern. Not long ago, General Secretary Xi Jinping mentioned on a certain occasion “to accelerate the implementation of digital currency research and development”, which also puts forward a task for us, and I take this to discuss ideas in this regard.
The payment system, first of all, what do we need to accomplish at the moment of payment, or the moment of payment? We can then think carefully about what changes the new technology will bring in this respect. Especially retail payment. At the moment of retail payment, consumers must first obtain the price, and use the price to consider whether to purchase a certain thing or a certain service. If it is a cross-border transaction, you also need to obtain exchange rate information, and then consider whether to purchase after conversion. If it is a cash transaction, you may need to prepare cash in advance. If it is an account transaction, part of the transaction must be completed instantly. If you use a credit card, you need to obtain authorization, and if you use a credit card, you also need to verify your identity.
When the Ministry of Commerce receives money, it needs to record sales tax or value-added tax, so why do many retailers or many countries require the use of cash registers? In addition, after the transaction is completed, it needs to conduct financial accounting. When receiving the currency, it also needs to consider whether it is a counterfeit currency, whether the transaction is in compliance, whether the transaction is true, etc. If it is a credit card or a credit card, the information transmission process also needs to be encrypted to ensure that it will not be intercepted.
At this moment of trading, there are actually some things to do, and these things are nothing more than two aspects:
First, obtain certain information.
Second, do certain data processing.
In the past, due to the limitations of communication facilities and computing power, the information obtained at that time may be limited, and the content cannot be processed too much, and too much may not be processed. There are also two types of processing:
First, what things can be processed on site, such as POS machines or using mobile phones as mobile terminals can handle a lot more things.
Second, it is passed on. Now there is cloud computing. In the past, it can be passed to the data processing center without cloud computing.
In short, if the communication and processing capabilities are greatly improved, more things can be done at the moment of the transaction. This is the way to analyze the problem.
With limited access to information and processing power, there are many things to be pushed before or after the event. The so-called advance, for example, for consumers, if you are going to make cross-border consumption, you must put the foreign exchange in advance and exchange your currency back to the foreign exchange of the destination country. You’d better change it more, or it will be troublesome if you don’t have enough. After you change it, you may not be able to use it in the end, and you will have to change it back when you can’t use it. Switching back Sometimes due to the different foreign exchange systems of various countries, you may still have certain difficulties. In addition, in this process, whether it is changed in advance or afterwards, it is necessary to bear the exchange rate risk. Of course, some people simply put the leftovers in the drawer after the exchange. This kind of currency holding is also risky.
For foreign exchange, the current account of the country is usually convertible, but the capital account is not necessarily, so there are many places where foreign exchange is still limited. There are also more or less annual quotas, and it is actually difficult to control if calculated on an annual basis. Therefore, because the annual limit is relatively large, it can’t control its use. Sometimes this use may be out of compliance. Some are said to be exchanges for current accounts, but they are actually used for capital accounts.
We say that for merchants, if they use POS machines or cash registers, then afterwards, they often have to finally aggregate the things, whether in cash or accounts, into the merchant’s account, which is also conducive to taxation and financial analysis, such as The needs of accounting, etc. Then the commercial bank will also play a very important role in this process. It may make the final settlement, especially when it comes to current payment tools, such as cards, mobile terminals, mobile phones, etc., when it comes to settlement and risk control. . Cross-currency issues may also involve the central bank, which needs to do liquidation. Here commercial banks and central banks may do some things after the transaction, which means that there are a lot of work to be done before or after.
We said that after the communication ability, the ability to obtain information, and the ability to process data are greatly improved, the distribution of workload can be adjusted. This adjustment can do more things at the moment of transaction, and may make payment more convenient, especially cross-border payments can also be more convenient.
Of course, everyone also said that blockchain and distributed ledger systems are a choice. Of course, it also involves the issue of currency, and it also involves the issue of consumption tax or value-added tax that merchants should collect on their behalf. It is not like privately. You don’t have to pay the cash and you don’t have to do other things, it’s not that simple.
The improvement of the information acquisition and processing capabilities just mentioned can complete more work at the moment of the transaction, or the instant of the transaction. One possibility is to put the exchange rate work in this link to perform, that is, when you buy, At this moment, exchange the currency of a certain currency in your own original account at this time. The amount of exchange is exactly the same as the goods or services you want to buy.
In addition, information can be obtained more conveniently than before. The first major information here is exchange rate information. The exchange rate can be fixed on the first day, or you can use the real-time exchange market information. If it is the currency of some small countries, you can also use the calculated exchange rate. In short, this is different from the previous conditions.
Another good control is the trading scene. The merchant has a code, so he knows what his purpose is, so he can clearly determine whether it is a payment for a current account. Regardless of which country it is in accordance with, whether the rules of exchange are compliant or not. So to this extent, it can also be said to be a smart contract.
Smart contract should be said that the simplest smart contract is the conditional statement, just if-then else, that is, exchange can be done under circumstances, and under what circumstances cannot exchange, and payment is completed, then control can be carried out. In this way, a lot of work before and after can be reduced, and the transaction can be completed by contemporary IT technology at the moment. This is also more in line with the needs of Asia, especially emerging markets and developing countries.
Last summer, when Libra was introduced, some of it was condescending. After its currency came out, the currencies of many other countries may be replaced in the future. This caused everyone to be concerned about the issue of monetary sovereignty, and also worried about dollarization or other The issue of currency replacement is also the issue of whether some countries can implement the basic measures required for their own macro-control. In short, a lot of concerns have arisen. It certainly proposed to peg to a basket of currencies, but it did not give a very clear approach. Therefore, after a period of time, the second edition of its revised version is only pegging to the US dollar. Therefore, many emerging markets and developing countries are worried about dollarization. of.
Well, you can see many examples of dollarization. Some of them are more extreme dollarization. We said that Zimbabwe has seen more comprehensive dollarization after very high inflation. Then there are many countries that are partially dollarized. According to the nature of their deposits or the nature of their currency use, this country may have tens of percent of the use of U.S. dollars, that is, partially dollarized. These countries will complain that the dollarization will bring many problems, so this is a point that needs attention.
I also talked about it in the forums in China, Singapore, and Chongqing not long ago, neighboring countries around China, we have China, Japan, and South Korea in East Asia. Below we have the ten ASEAN countries, and the development level of the ten ASEAN countries is very different. The level of national macro management is also different, because the debt level, coupled with the balance of payments, will affect the country’s choice of foreign exchange system to a large extent. Because the differences are very large, so try to avoid doing work in this area, do not replace other people’s monetary sovereignty at every turn, causing other people’s monetary policy and foreign exchange policy to no longer take effect.
In addition, taking into account the needs of each country’s macro-control, it can also take care of people’s concerns about dollarization. It can be inferred from this that, in fact, for the internationalization of the renminbi, what we call the internationalization of the renminbi refers to the free use of the renminbi. If you are willing to use it, it can be used in trade and investment, but we are not like Libra and seem to want to replace others Application in all aspects. Therefore, we say that some countries are actually worried about the internationalization of the renminbi. In fact, we can not touch these sensitive points, do not enforce, and avoid the possibility of great power chauvinism.
So on this basis, according to what has just been said, if the exchange is realized at the moment of the retail transaction, and the review of the exchange conditions is realized at that time, if technically possible, it will bring a new kind of interconnection. The scheme of operation possibilities.
In the past, when using a credit card, for example, you have a credit card with a U.S. dollar account or a UnionPay card with a RMB account. When doing overseas transactions, it actually also gives you a convenience for exchange, but the exchange information is often not timely. Sometimes it is not transparent. We say that both Visa and Master cards are willing to promise you preferential exchange rate treatment, but in fact, this is not always the case.
We say that using the current Internet technology and the processing power of mobile terminals, as well as the processing power of cloud computing, these things become more possible than before.
First, the exchange rate selection of different options is quite timely.
Second, smart contracts.
We said that even if the current account is convertible, everyone’s understanding and specific regulations are sometimes different. For example, from the perspective of China, we are also the same as other countries in the world. Money laundering, terrorist financing, drugs, and arms trading are all expressly prohibited and are not in compliance. However, different countries also have different regulations. For example, China considers cross-border gambling transactions to be non-compliant, so you need to use conditional payments or smart contracts to control them during the execution process.
There are also some fuzzy areas, that is, between the current account and the capital account, there are some fuzzy areas. For example, purchasing personal health insurance or property insurance abroad, as in the Chinese authorities a few years ago, clearly pointed out that this is not in compliance. In terms of definition, sometimes it is not completely clear. If the conditions can be reviewed at the moment of the transaction, and it is easy to do, because of the merchant code and the spending limit standards in different industries, then these conditions are all enforceable. It is possible to achieve relevant compliance for exchanges without being too complicated or delaying too much time.
There is another advantage here, there are many supplementary cards. In the case of a credit card supplementary card, if the person making money at home is the main card, then his children may have supplementary cards, some of them go to school, some go to travel, and sometimes the self-discipline of non-adults is not enough, so Sometimes there are restrictions on consumption. Which ones are not allowed to be contacted, which ones are not ready to be paid, and which ones are paid? What kind of limit is set for him at home, these things can be done through smart contracts or conditional payment. carry out.
One of the big benefits is that since the amount of a single transaction is relatively small, it is easier to see if others are trading frequently, and it is also difficult to accumulate a small transaction volume to do non-compliant things, such as capital projects. For example, going out to do speculative trading in the financial market, the judgment is much easier than before.
For consumers, since it does not need to be exchanged beforehand, and it does not need to be exchanged afterwards, the exchange rate risk it faces is relatively small.
As I just said, the workload before and after the event is greatly compressed, and there is more information acquisition and data processing at the moment of the transaction, but in the end, there is still a part of the before and after work. Afterwards, there may still be cross-currency delivery issues after this. Then one of the delivery is the delivery after the netting, and the other is that the quantity after the netting is relatively small. The central bank can designate a commercial bank to be responsible for the delivery and clearing of a certain currency, or the central bank can directly Arrange the mode of liquidation.
We know that Hong Kong has engaged in RTGS. One is that the Hong Kong Regulatory Authority designated HSBC to be responsible for US dollar clearing, Standard Chartered Bank was responsible for euro clearing, and Bank of China Hong Kong was responsible for renminbi clearing. In this way, they can take on this work. In terms of the Hong Kong system, Hong Kong and the Mainland are in the same time zone, but not in the same time zone as the US dollar and Europe. Therefore, there will still be a small amount of exchange rate risk when crossing time zones, but large commercial banks have relatively strong control capabilities. , There are also some risk management tools. In addition, the exchange rate change within a day will be relatively small. Then there can be similar arrangements between central banks.
What I particularly emphasize here is that it is not necessary to engage in full amount. For example, RTGS is a real-time full amount settlement system. In fact, some things can be traded after netting. Also due to time, you can deal with it on the same day. If everyone’s exchange rate is relatively stable, you can also deal with it in three to five days a week. In short, the exchange rate risk of such a transaction is relatively small. At the same time, the central bank and large commercial banks should say that the ability to use risk management tools and insurance is relatively strong.
As mentioned earlier, when Libra was introduced last year, it aimed at cross-border remittances. Although cross-border remittances are also a need, we said that if cross-border remittances can be realized with a basket of currencies or U.S. dollars and realized with Libra technology, then after it landed, for example, those working in the United States would be sent back to Mexico. Can the money be used in local retail and can it be purchased? If the retail system does not support it, then it still needs to put the remitted money back to the local area, and when it is returned to the local area, it will involve possible exchange Is there any exchange rate issue, is there any policy obstacle, is it convenient? So we say that the retail system and the payment system are more basic content. If the retail system is done well, it will temporarily avoid everyone’s worries about dollarization, like the solution just mentioned. In this case, the remittance problem actually becomes easier to solve. Some obstacles to remittances are not technical, but policy systems.
At the moment of the remittance transaction, if the exchange is realized, then the exchange rate issue in this exchange process actually complies with market laws, and there are fewer policy obstacles involved. In addition, during this process, it is also possible to examine whether it is money laundering, terrorist financing, drugs, gambling, etc. At the same time, if you remit money once a month or once every three months, the total amount will not be too large and easy to review. This amount may be equivalent to regularity and will not cause capital or large amounts of fraud. , Money laundering.
We can imagine that following the above-mentioned retail transaction, there should be no major technical problems in remittance. Of course, there will be certain risk management issues in remittances, as well as exchange rate issues. It is best to say that the financial institutions involved in both parties still have to arrange a certain fee, which can cover risks and operational costs, so that various new programs and innovations can have relatively objective cost accounting.
Finally, what is the future development direction of global currency? I don’t think everyone can see it accurately. If there may be a world currency in the future, whether it is SDR or a variant of SDR, it may be really a big country, such as the United States, which applies the US dollar to the world. Now that this happens, according to our thinking, the adaptability of technology should be It is not a problem, and many programs have a considerable degree of flexibility and can be adjusted in time to meet the needs of future changes in the global financial landscape.
If we take advantage of the information acquisition and information processing capabilities available at the moment of the transaction, we can do a lot of work in the modernization of payment systems and the facilitation of cross-border payments, and we can continue forward, that is to say, the existing system and the previous The formed system has relatively good cohesiveness, and also has quite good backward adaptability. This approach is obviously different from the ideas formed by Libra or Diem now, and it is also different from the Token base digital currency. It embodies the strengths and benefits of the two-tier banking system based on accounts.
The above is one of the options I have introduced in terms of modernizing the payment system and facilitating cross-border payments. Thank you.
