Zhou Xiaochuan, the former governor of the People’s Bank of China, said that the digital renminbi is not meant to replace the dollar’s reserve currency status, nor will it replace the role of third-party payments.
Original title: “Zhou Xiaochuan’s latest speech: Digital RMB is not intended to replace third-party payment, nor is it intended to replace the dominant position of the U.S. dollar (full text)”
Speech: Zhou Xiaochuan, President of the Chinese Society of Finance and Former President of the People’s Bank of China Source: Economist Circle Official Account, Link Wen is authorized to reprint
According to news on May 22, the 2021 Tsinghua Wudaokou Global Financial Forum was held today. The theme of the conference was “New Pattern, New Development and New Finance”. Zhou Xiaochuan, President of the Chinese Society of Finance and Honorary Dean of Wudaokou School of Finance, Tsinghua University, attended and delivered a keynote speech.
The following is the full text of the guest’s speech:
Dear guests and delegates, good morning! I am very happy to participate in this Tsinghua Wudaokou Global Financial Forum. I have just listened to President Qiu Yong and Dean Zhang Xiaohui giving very important speeches. This year marks the 110th anniversary of Tsinghua University. President Xi personally gave important instructions to the development of Tsinghua University and placed high hopes. Under such circumstances, the Wudaokou School of Finance of Tsinghua University and the Global Financial Forum hosted by it are getting better and better. Today, I want to talk about an academic issue, “digital currency and electronic payment system”.
This topic has been discussed a lot for some time now, and it is indeed the party Central Committee and the State Council that have clearly paid attention to it and included it in the “14th Five-Year Plan”. It is necessary to actively explore the contents of the development of pilot projects. But I have read many media reports and comments in this regard, and found that there are actually many concepts that need to be further clarified, and some direction issues need to be explored. Although China has entered the DC/EP R&D and pilot phase, there may still be a lot to discuss about the understanding of this issue, so I take this opportunity to communicate with you again, and at the same time I feel that it is also of international interest problem. Of course, I am also in this position as a bystander. I actually have a certain distance to some specific issues in the R&D and pilot process, and the observation is not very accurate. I would like to discuss this topic with you.
First of all, some discussions on this issue by the media, especially foreign media, will cause some misunderstandings. I just said that in the past few years, we have had a lot of discussions on these basic concepts, but it is not that everyone has reached a consensus, or that everyone has a deep understanding of this issue.
To cite a few examples, there is a saying in the foreign media that China’s DC/EP or e-CNY can’t replace the US dollar’s dominance in the world no matter how it develops. I think this statement itself is not right, because the development of DECP is mainly based on the modernization of domestic payment systems, keeping up with the pace of the digital economy and the Internet era, improving efficiency and reducing costs, especially for retail payment systems. The purpose and direction of the design did not intend to replace the U.S. dollar’s status as a reserve currency and the status of an international payment currency.
There is another argument that foreign media have said more, that is, the research and development and piloting of digital currencies are closely linked to the internationalization of the renminbi, and they believe that digital currencies will not help the internationalization of the renminbi, or that it will not achieve the internationalization of the renminbi. I think this problem. The modernization and digitization of the RMB payment system will help improve the status of the RMB and increase the cross-border use of the RMB to a certain extent, but it is not very helpful. The internationalization of the renminbi depends more on system and policy choices, and more on the progress of my country’s reform and opening up, rather than on technical factors.
There is another argument that the DECP and e-CNY promoted by the People’s Bank of China are intended to replace the current role of third-party payment. I think this is also a false argument. The People’s Bank of China clearly stated that DECP’s plan is a two-tier system, and that the entire R&D team is organized by the People’s Bank of China, composed of major commercial banks, including China Construction Industry and Agriculture, as well as telecom operators and several major third-party payment institutions. Participation in research and development is based on their previous work, aiming at a new level of upgrading. Everyone is on the same boat. Of course, people on the same boat sometimes have different opinions, and sometimes there may be disputes on some issues, but after all, they are on the same boat. It’s not that some people say that it seems to be a kind of infighting, who will replace whom.
I happened to watch a movie two days ago. It was about playing volleyball. I want to give an example. How do volleyball players train? To increase the attack and spiking power of volleyball, athletes need to train their muscles. As a result, someone on the side might start talking coldly after seeing this training, saying, “Your muscle training is good, but no matter how you train, if you want to participate in the weightlifting competition and get a place, there is no door.” The team said that we didn’t plan to participate in weightlifting competitions at all, so don’t use this kind of irrelevant thing as a rhetoric. In addition, the current style of volleyball is paying more and more attention to the backline attack, taking off beyond the three-meter line. When training the backcourt offense, someone would say that the coach and setter deliberately belittle the offense of the second and fourth players and focus on the backcourt offense. This kind of provocation is meaningless, because everyone in a team actually hopes that when a pass is good, there will be a chance to score offensively, and to put it bluntly, volleyball games are often rated as the best smasher. Whoever gives more chances to score more points , So sometimes there will be some internal disputes, this is normal, but after all, they are a team, everyone must cooperate to make progress together.
I give this example to say that some unwarranted concepts or formulations are actually lack of understanding of R&D plans and pilot projects, and at the same time it is easy to cause “this mountain looks high at the other.” It is obvious that the plan has been put forward, and it is already in the process of system construction and piloting. Don’t play volleyball and want to win the championship in other sports. This may be problematic.
There is another discussion about controllable anonymity. In fact, the payment system must strike a balance between protecting privacy and anti-money laundering, anti-terrorism, anti-drugs, and anti-cross-border gambling. On the one hand, privacy is guaranteed, while necessary monitoring of certain activities is also required. Therefore, if you look at this matter from two perspectives, someone will stand on the left and say that your privacy is not enough, and someone on the right will say that you have condoned money laundering and drug dealing. So it must be at a certain balance point in the middle, but this balance point can also be chosen to be slightly to the left or slightly to the right. The concept clearly put forward by China’s DECP is called controllable anonymity. From the point of view of controllable anonymity, it is not a point that can be precisely located mathematically, but what it expresses is to protect privacy and anti-money laundering and anti-drug transactions. A point of balance. You can further study where this balance point is, but don’t use this matter to debase or attack the DECP process deliberately or deliberately.
There is also a question about whether the issuance rights of digital currencies need to go through special legislation, etc. I will say a few words later when I have the opportunity. Maybe there are many concepts that need to be explored in the middle.
In short, in the context of media and various discussions and various voices, we still need to strengthen communication and strengthen discussions in this area, so that society, including all aspects of the world, can have a clearer understanding of the progress and development of digital currency and China’s DECP. Have a better understanding of e-CNY.
In the second aspect, I would like to talk about the modernization of the payment system. Which one should I focus on? First of all, let’s say that digital currencies have many different focuses from a global perspective. Some focus on improving the efficiency of retail systems, some focus on wholesale transactions, and some focus on whether transactions in exchanges and financial markets can adopt new payments and Settlement system. Some people say that there is so much trade in the world, including commodity trade and service trade, whether commodity and service trade can be more convenient. When Facebook first launched Libra, it felt that cross-border remittances were inconvenient and could not improve the convenience of cross-border remittances. Some people also mentioned the convenience of cross-border investment, so there may be development prospects in many fields. I want to talk about what we should focus on. On the whole, payment system modernization is a step that takes a period of time. Generally speaking, this step is a relatively large step, so that everyone has enough motivation. For example, like mobile phone upgrades, some manufacturers release a version within a few months. , But from the user’s point of view, my mobile phone was only bought with money, and it is still usable, and the performance is not much worse. Therefore, we must think that this step needs to be relatively large, and we will consider upgrading in the future. It is particularly small. If we have to change the system for small improvements, there may be insufficient power. Therefore, we must use this kind of disparity to measure how big the step is to see what direction we choose.
How to look at this level, one is to look at the function of the system, how is its efficiency, how is its performance. The second one looks at the cost, whether the cost can be reduced, and the ratio of efficiency to cost is cost-effective. In addition, we must also look at the possibility of errors in this system, because the financial system involves stability and confidence, and is very concerned about the probability of errors. Another is that it is difficult to avoid 100% error-free, a small probability of error, after the error can be corrected after the error. For example, if the payment is wrong, whether it can be refunded, whether the loss can be stopped, there is also a charge back in the credit card, that is, the money can be retrieved. There is also the ability to control risk in terms of performance, and how strong the risk control ability of this system is. Sometimes, from the perspective of technology development, some technologies hope to use their technology, but from the perspective of the financial system, the emphasis on stability, risk control, error probability, and error correction capabilities may be more important than from a technical perspective. It is more demanding.
Let’s take a look from these perspectives. From the perspective of China, the retail system is more important, and this step can be made larger. China is a society that uses more cash, but it is not particularly prominent from a global perspective. I estimate that even in developed countries where credit cards are more popular, they will feel that with the emergence of the Internet, especially the mobile Internet, this step is still worth moving up. In addition, this is also the demand of the customer, and the customer does not want to have too complicated and too diverse payment methods. I very much hope that mobile Internet will emerge as a mainstream retail payment method when mobile phones are available. Therefore, this level of cost savings is also great, and the motivation to move forward is relatively large.
From a wholesale perspective, some countries now want to engage in CBDC. From my personal observation, China’s e-CNY is not a complete CBDC. Of course, it can also be discussed in the big issue of CBDC, but it also has its own characteristics. There is a kind of CBDC that mainly shifts to the wholesale system. Most people and people in the non-financial system do not know much about the wholesale link of the payment system. He does not know the clearing system behind it, or the bank clearing and settlement behind it. How does it work. I don’t know if the system is currently inefficient, if it is wrong, if the cost is too high, if it charges more to the bank, or if the fees collected are indirectly passed on to other bank customers. With the development of technology, the wholesale system also has great potential for further improvement. However, there is not much room for improvement in efficiency at present, even if it is improved, it is not too obvious, and there is not much feeling in the society. Generally speaking, we feel that we should pay attention to the wholesale link. However, this step does not seem to be too big now, and it is a rather small step. This is the way.
There are also exchanges. All systems of the exchange are still running very well. Except for individual cases, especially due to flash crashes in the United Kingdom, the overall operation is relatively good. Although the entire system of the exchange, including the so-called price-priority and time-priority queuing automatic matching system, and the subsequent securities registration and delivery system, there are also a lot of costs. But the voice in this regard is not high. If everyone wants to reduce transaction costs, it may be more to reduce stamp duty, which is more concerned than the cost of technical systems.
In addition, it is not that the faster the transaction settlement, the better. For so many years, everyone has been discussing whether the exchange technology system has the ability to provide T+0, can rotate the transaction on the same day, and can provide more high-frequency trading. But in fact, the discussion of market participants also raised certain doubts and challenges. It is not that the sooner the better. The entire payment system also includes the exchange system. In the future, it is possible to realize a real-time full-value trading system, but the real-time full-value trading system is not a good choice for all links. This is why the ISDA Derivatives Trading Association has repeatedly advocated that you want to engage in balance settlement, which is more beneficial to the risk control of market participants, and at the same time reduces the so-called risk required due to the economic capital required for each real-time full transaction measure. In terms of the exchange system, it is not that the faster the speed, the better the full real-time transaction. Therefore, it is also related to the question of how much room is there for this step.
Let’s look at international trade again. International trade is actually the most important content in cross-border payments, including commodity trade and service trade. But this trade is the imagination of outsiders, and it is easy to think that international trade can be like when we ordinary people go to the store to buy things, and we can just pay for the good things and deliver them. In fact, in most cases of international trade, there is a certain batch, which involves a more complicated system than this. First of all, most of the current commodities except bulk cargo are containers. One container contains many things. A lot of information related to varieties and specifications needs to be stipulated in the contract, and a lot of communication must be done in advance. More importantly, it involves transportation, warehousing and insurance. What is the transportation process? Will there be risks? Will there be losses in the transportation process? How about the storage process? Will things be broken inside? Everything leads to a further series of services, and it will involve finance.
From a payment perspective, cross-border payments involve exchange rates and currency selection. In addition, because exporters also need trade financing, when the goods are sent out and the other party receives them and inspects the goods on delivery, the next step of production has already started during this period, so trade financing is needed. In the past, a typical tool for trade financing was credit. After opening a letter of credit, you can go to the financing, and you can borrow money from the bank for the next round of production. This financial service must also be included as an important component.
In addition, there are quite a lot of small and medium-sized enterprises doing international trade. They cross countries and sometimes large states, and they don’t know each other very well. Although some people do not know the basic knowledge, they must find a bank. Country A finds a bank that he is familiar with, and the bank where he opened an account, and Country B also finds a bank he is familiar with. The banks have established an agency relationship. In addition to making payments, the bank relationship is actually to establish a trust relationship to help establish a relationship between people. Although the entire system is very complicated, and some people complain that it may be inefficient and can be improved, it is not like ordinary people go to a store to buy things, as some people imagine, pay the money and deliver the goods, and then the money will be done. What is complicated. Also think about the reasons. The transformation of this system does not mean that the digital currency that is currently imagined will be so easy to replace it. This level may require more functional considerations, and then see what opportunities are available for upgrading in the next step.
Another is remittance. Cross-border remittances are indeed costly. Some banks charge too much for cross-border remittances. However, the main obstacle to cross-border remittances is that Facebook has caught the hotspots of cross-border remittances, so it is proposed to use them. Libra does cross-border remittances, and in order to be accepted by more countries, he knows that many countries are worried about dollarization, so he uses a basket of currencies. As a result, he did not expect that a basket of currencies had been discussed internationally for many years. Everyone tried to see how the international monetary system was made from various angles, so this was not a very simple matter. After trying for a year, I found that a basket of currencies was difficult to achieve, so I changed from Libra to Diem, only for the U.S. dollar. Cross-border remittances are not only technically difficult, but also more difficult to make policies, especially those involving cross-border workers’ remittances to their homes, as well as developed and developing countries, and mutual remittances between developed countries, even though there are US dollars. , Japanese Yen, Euro, relatively speaking, the efficiency is relatively high, and the cost is not too high, but the cost in developing countries is relatively high, and the time delay is also relatively large. Therefore, this is an opportunity to step up, but it does not rely solely on Technical system can solve it. It depends on the settlement of system policies, especially when it comes to exchange rate systems and foreign exchange management. Some countries have foreign exchange controls. Many young people may not know that before China’s reform and opening up, there were so many overseas Chinese who sent money to their homes. They may send money in US dollars and Japanese yen, but you can’t get them. You must change to RMB, the exchange rate at that time. It is also very unreasonable. What should I do if I get less, I will give an extra part of the exchange coupon. Although China has already passed through these stages of reform and opening up, many other developing countries are still facing similar and various problems. In addition, they are indeed worried about the risks brought by dollarization. Therefore, when we choose to use digitization and the Internet to improve the modernization of the payment system, and to reach a higher level, in which direction this step can be achieved greater and the results achieved are more obvious. This is what I think needs to be considered in the selection. of.
At the same time, don’t even think about eating into a fat man, saying that I have built a system that can brag about it. It can not only solve the retail payment, but also solve the wholesale system. The exchange system has also been completely reformed, and all the problems of trade settlement and remittance have been solved. solved. I don’t think this is realistic, so if you make this choice and conduct R&D and pilot projects, you must be determined not to look at the high mountain from one mountain to another.
Finally, let me talk about the internationalization of the renminbi. I think the internationalization of the RMB is a good topic. As the world’s second largest economy and the world’s largest trading country, China’s currency status should be improved, and there is indeed potential for improvement, but the technological system just mentioned will affect This has an impact. Therefore, in recent years, there have been a lot of technical developments and a lot of support, such as the cross-border renminbi payment system (CIPS), etc. Is it possible to use digital currency CBDC and other things to take a big step? I don’t think we should overestimate the technical factors. It is more about the system and policy factors. It is still a choice of reform and opening up, and the next step is the question of how big the choice is.
First of all, whether a currency can be widely accepted may depend on the size of your economy, the volume of trade, and the degree of openness to the outside world. It does not mean that you can force international users to make any choices. (Customers) have the right to make their own choices. . Therefore, the versatility of this kind of operations is not only a technical feature. One of the main contents is the degree of free use of currency. In 2016, the International Monetary Fund included the renminbi in the SDR. One of the factors is that the degree of free use of the renminbi has been greatly improved, but it is a continuous process. There is a lot of room for continuous improvement. However, no matter how freely you can use it, you should still pay attention to the function of anti-money laundering. It is also necessary to prevent tax havens, prevent tax evasion, prevent drug transactions, and so on. This is one aspect.
There is another currency’s ability to resist shocks. Everyone knows that every country in the world, at various stages, will have financial crises every other time. Now everybody knows that it is the 2008 global financial crisis. But in fact, you really seem to have financial crises in every country for more than ten years or decades, so the ability to resist shocks is also very important. Therefore, we think it is still an institutional factor, and China may further increase its reform and opening up in the future, and it will make clearer choices. And this choice also depends on the path of development, and the path of reform and opening up depends on the balance of views. In fact, this view is also a kind of distribution. Just like I just said about the balance between currency privacy and anti-money laundering, some people think that the renminbi can be freely used and convertible is a very good thing and can be promoted as soon as possible. Some people think that this is a very bad thing, and it is very risky, so try not to do it. It may be a normal distribution in the end. There are more opinions in the middle, and it is constantly shifting with the reform and opening up. Therefore, we say that the changes in the opening process may be more related to the internationalization of the RMB. Technical factors are the foundation. It is relatively easy to do. Including when the financial system was doing CIPS, banks like Bank of China that played a big role in cross-border payments in the past. For them, it is not a problem to develop a system with clear policies and systems using existing technologies. Things that are too difficult to advance, of course, we cannot underestimate such efforts.
At the same time, I also want to say here that I have always emphasized the internationalization of the RMB. From the perspective of the central bank, the currency issued is your liability, and many people think it is your asset. I still remember that at the dinner table of a very important international conference, there were very prominent guests commenting on the internationalization of the renminbi. In the future, you will be global You can send renminbi, you have a lot of assets. You are not right when I say this. From the perspective of the balance sheet, the issuance of currency is a liability of the central bank. The part of your liability that you want to make is cashable, it has purchasing power, and it is stable. And when you want to use currency to achieve a certain function, the central bank has to provide people with this convenience and guarantee. So from this point of view, it is a kind of liability, that is to say, don’t take the RMB internationalization too much as a kind. It seems that I can create an asset out of thin air, but you have to think more about what you want to make. Commitments and obligations are considered from the perspective of the balance sheet.
Therefore, with the modernization of the payment system, DECP and E-CNY will first be used in cross-border retail, including the use between travelers’ business visits, and the now more fashionable retail online shopping, which will bring an improved experience, and at the same time, the RMB There will be benefits. From a broader perspective, in order to realize the internationalization of the renminbi in various aspects such as wholesale financial transactions, trade and remittances, we also need to make continuous progress in the policy system. We believe that progress can be made in these aspects in the future. It is a major step in making substantial progress in the internationalization of the renminbi.
At the same time, I also emphasized on different occasions that it is also a relative thing. The major international currencies do have a share of each other. Anyway, it cannot exceed 100%. If I have more, you will have less, except you do it yourself. In addition to being good or bad, it also depends on how well others do.
I will take this opportunity to report to you on such a topic, and also make a little input for Wudaokou Institute of Finance and this Global Financial Forum. Please criticize and correct what is wrong, thank you.
