Wang yongli: the central bank's digital currency is just the digitization of RMB cash

Wang yongli, former vice President of bank of China

The original was published on the China economic network

On the evening of April 14, a picture of DCEP, a digital currency of the people's bank of China (pboc), in a private test of the bank's "wallet" APP, was widely leaked online, triggering a new round of discussion about the central bank's digital currency. Based on the relevant information disclosed by the central bank officials, as well as the basic logic of currency and payment and settlement, I would like to make some comments on the central bank DCEP for your reference. & have spent & have spent

On the evening of April 14, the bank of a digital currency DCEP in agricultural bank closed "wallet" APP images widely on the Internet, and efferent DCEP is in shenzhen, suzhou, male pilot, Ann, chengdu and suzhou city in May belong to the district authorities, institutions and enterprises directly under traffic subsidies will be part of the employees in the form of digital currency issue the information of the digital wallets, subsequently, the central bank institute of digital currency shall be confirmed in a statement. This has sparked a new round of talk about central Banks' digital currencies.

Some people have published articles saying that the Chinese currency is about to undergo an epic transformation. Digital money from central Banks will reshape traditional finance; China will lead the digital currency world with a major upgrade of the RMB. China's digital currency will bypass SWIFT, which is controlled by the us, create its own global clearing system and give a strong push to the internationalisation of the renminbi.

Many friends have asked me for my opinion on this.

I think, the central bank DCEP involved in monetary form, distribution, function of the bank account management, quota control, carrier, privacy, payment and settlement way many contents, such as its specific application involves surface extremely extensive, settlement speed and safety management requirements is very high, need to be released by the central bank official management rules and implementation rules, the people's bank and modify accordingly and the management regulations and other relevant laws and regulations, there will be a probation period and the official opening date, will give the bank, the payment company operations and various application scenarios such as digital currency receipts and participants a preparation process, people need not too nervous now, Do not have to all kinds of divorced from the reality of the speculation and deduction of too much mental labor.

Here, based on the relevant information disclosed by the central bank officials, as well as the basic logic of currency and payment and settlement, I would like to make some comments on the central bank DCEP for your reference.

I. relationship between DCEP and legal tender

In recent years, the concept of "digital currency" has been surging from the completely de-centric network of endogenous cryptocurrency, such as bitcoin, Ethernet COINS, etc. To digital "stability COINS", such as USDT and GUSD, that are linked to a legal tender equivalent but run on technologies such as blockchain; Then, the idea of structural linkage with a variety of legal currencies and the use of block chain technology to form and operate the borderless (super-sovereign) network "comprehensive currency", such as Libra, eSDR, etc. Many believe that this will have an extremely profound impact on the national fiat currency and even the international monetary system, and may even overturn or replace it.

Since 2013, central Banks in many countries have also paid close attention to digital currencies and even started to study and design "central bank digital currency" (CBDC). Among them, the people's bank of China has set up a digital currency research team since 2014. In January 2016, it announced to "strive for the early launch of digital currency dominated by the central bank"; Since July 2019, central bank officials have said that the state council has approved the central bank's digital currency research and development, and is now organizing market institutions to participate in the development and testing of the system. Now, as digital currency testing begins in earnest, China could become the first country in the world to launch a central bank's digital currency.

From the central bank announced in 2016 that strive for an early launch of central-bank digital currency, himself has repeatedly stressed: COINS, such as the etheric currency completely decentralized network endogenous encryption, digital currency violates the logic and law of currency development, can't be real currency with national legal currency and symbiosis, they are only in a certain network virtual environments for use in a "virtual currency" or virtual assets; "Digital currency dominated by the central bank" must be centralized, and it is impossible to build decentralized central bank currency by using block chain and other technologies in accordance with the models of bitcoin and ether COINS. It is impossible for a country to run two legal tender systems (traditional legal tender and new digital currency) at the same time. Therefore, the digital currency of the central bank can only be the digitization (electronic version) of legal tender, and it focuses on improving currency management and payment and settlement methods, improving currency operation efficiency, reducing operation cost and strengthening compliance monitoring. (you may refer to this aspect I about "accurate view and effective regulation of digital currency" and other related articles, as well as on August 24, 2019 published in economic observer of the challenge of digital currency fall to the ground running "central bank", February 4, in the public of the serial number "credit monetary analysis" series, especially # 3: "the basic judgment of all kinds of" digital currency "")

Now, the central bank has made it clear that the central bank's digital currency is the digitized renminbi. It is the renminbi, not the same as the renminbi, not a new currency in addition to the renminbi; It and the network cryptographic digital currency, network stability currency, network integrated currency is not the same thing; The central bank's digital currency mainly changes the form of currency, the way of issuing and the way of payment and settlement. There is no subversive change in the currency itself, but the biggest change is the way of payment and settlement. Because of this, the central bank officially named it "DCEP", where "DC" is the abbreviation of "Digital Currency". "EP" is the abbreviation of "Electronic Payment", which means that the digital currency launched by the central bank is more about the digitization and Electronic Payment of currency.

As a digital RMB, DCEP has no value of investment or collection.

Ii. Relationship between DCEP and RMB cash

Central bank officials disclosed, DCEP will notice M0 (cash) to replace, not replace M1, M2 (actually bank deposits), and will adopt a "double operation system", the central bank put DCEP exchange to the bank or other operations, again by these institutions to the public, to avoid impact on bank lending and deposit, and therefore may cause excessive vibration of the entire financial system.

So, more strictly speaking, DCEP is really just the digitization of renminbi cash, not all renminbi, so it would be more appropriate to call it "digital cash".

To achieve DCEP as a replacement for cash, rather than for bank deposits, it is necessary to control the overall scale of "digital cash" and "physical cash", and continuously reduce the proportion of physical cash while expanding the scale of digital cash. At the same time, members of society should be encouraged to give priority to exchanging physical cash for digital cash through operating institutions, which in turn exchange it for digital cash with the central bank. There are limits on transferring deposits into digital cash "wallets", but no limits on transferring digital money back into bank deposits.

It is important to note that DCEP is a digital cash alternative to physical cash, with many of the features of cash in function and use, but should not be exactly the same as physical cash. For example, physical cash has physical carriers and different denominations, patterns, years of issue, each note has its own number, etc. Digital money does not need these things at all, but only needs to record the amount of the currency (to two decimal places, that is, below "yuan" to "Angle", "cent").

Surprisingly, recently online from the agricultural bank of test images of the central bank digital currency the wallet APP, impressively shows marked with "the people's bank of China," face value "1.00" selections, the patterns of the number "20200414191111" and MAO zedong (see below), seems to be the central bank digital cash to completely according to physical money, also want to have different value and pattern, number, etc., which greatly beyond my imagination. In my opinion, this is the biggest misunderstanding of digital currency. It is just gilding the lily. Digital currency should be just a number, not designed to imitate the specific form of cash.

At the same time, digital cash, as a new form of RMB, may not be reflected in the RMB management regulations. Before the launch of DCEP, the management regulations need to be modified accordingly.

Iii. How does DCEP achieve limited anonymity

Money from the natural material money, developed to the regulation of metal money, further developed to the metal standard system of paper money, and then developed to the pure national credit money; From tangible money (cash) with physical carrier to electronic digital money (deposit, electronic wallet, etc.), the main driving force for its continuous development and evolution is to continuously improve the operation efficiency, reduce the operation cost, and strictly monitor compliance. Which, due to the cash in the printing and high operation cost, low efficiency, compliance regulation problems such as holes, with the development of information technology and the improvement of compliance requirements, all countries in the world in an attempt to promote digital currency (cash), and gives more through the clearing house to transfer funds liquidation (instead of cash settlement). As a result, the proportion of cash in the monetary aggregate has been declining, and now it is basically below 5%. In China, it has been reduced to less than 4%.

However, the high degree of cashless, and let many people feel that every currency receipt and payment will have the records of the clearing house to check, personal privacy is greatly affected, easy to cause a lot of unnecessary trouble. Therefore, some people believe that the balance between strengthening monetary regulation and protecting personal privacy needs to be sought in the design of currency.

Based on this, the central bank adopts the principle of limited anonymity in the design of DCEP. The possible approach is that digital currency receipt and payment information is very limited in the operating institutions, mainly involving the wallet account name and receipt and payment amount, but in the central bank is complete and true.

This also means that the operating institution's DCEP wallet can only be a "shadow account", which is just a channel connecting the central bank and the owner of DCEP. It can only handle the recharge and usage deduction of DCEP wallet, the collection of accounts, the transfer of deposits, etc., and it cannot know the specific situation of its use, especially the information of the counterparty and the transaction itself. DCEP's owner's account at the central bank is the "real account", as long as the central bank can obtain the full real-name information and transaction information of the account owner, and use it for anti-money laundering and other aspects of monetary regulation.

In this way, when DCEP receives and pays, the relevant information shall be sent to both the operating institution of the receiving and paying wallet management and the central bank. The operating institution of the paying wallet management shall deduct the balance of the wallet and increase the amount payable to the central bank. The operating institution of collection wallet management increases the wallet balance and increases the receivables to the central bank. The operating institution may summarize the checking and clearing of DCEP with the central bank on a daily basis, and the central bank shall adjust the records of DCEP current payments of the operating institution and related accounts of DCEP owners accordingly.

As a result, the operating institution can only know the change in the amount of the wallet through its own DCEP wallet collection and payment, but cannot know the situation of the counterparty. Only the central bank can know the complete situation of all transactions.

In this way, the central bank will break the traditional constraint on units and individuals other than financial institutions and financial departments to open accounts and conduct specific business, which may require corresponding amendments to the law of the people's bank of China.

It should be emphasized that as cash accounts, the central bank DCEP account and the operating institution DCEP wallet can only handle receipts and payments, not loans, overdrafts, and interest payments. Therefore, DCEP should not have an impact on monetary policy.

It should also be noted that the statement that DCEP is issued by the central bank and is a liability of the central bank, whose credit is higher than the currency of bank deposits and the wallet currency of payment institutions is actually inappropriate. This is because: in the metal standard system, paper money is indeed issued by the issuer, can be exchanged unconditionally to the issuer of the metal currency debt certificate, so it is ok to say that the currency is the issuer (central bank) debt. But under the credit monetary system, money is by buying reserves or lending into the indirect financing way, such as for currency into institutions, money is no longer its liabilities, because on the body no longer committed people can hold it to issue currency to change anything, legal sense of property debt no longer exists. When Banks issue money, such as loans, it is more a claim than a liability.

In fact, the credit currency is also called "sovereign currency" or "legal tender" because it is a currency whose value is supported by the tradable wealth within the scope of national sovereignty that can be protected by law, and whose circulation is protected by sovereignty and law. The "credit" of credit money refers to the credit of the country as a whole, and is no longer the credit of the central bank or the fiscal (government) itself. It is inaccurate to say that money is a liability of the central bank, or that it is protected by state taxes.

Some people call the money (cash) issued by the central bank "central bank money", the deposits converted from bank loans "bank money", the money in the e-wallet of payment institutions "wallet money", etc., but these terms are also inaccurate. Cash, deposit, wallet, etc., are the manifestation of money, not the money itself, from the monetary point of view, are unified legal tender. Only after the currency is deposited in the central bank, commercial Banks and payment institutions, does it constitute the liabilities of the central bank, commercial Banks and payment institutions. From the perspective of liabilities, it is different.

Iv. About the "touch and pay" function of DCEP

For a long time, a lot of people will DCEP can realize network "touch your pay" as a different bank net silver special window of mobile payment and payment institutions focus on propaganda, DCEP can like paper receipts and payment, in the case of poor or no network signal, as long as the two mobile phone "touch" with DCEP purse, can complete the payment transfer.

The "touch your pay", that is, "double offline payment" function, is not actually new technology innovation, and due to the existence and wallet management operations and the bank reconciliation appear mistake, prone to a sum of money "spend" risk, its use also is to have strict conditions and strict management, is normally only a small amount of cash can only be used, and to realize the attachment send receipt and payment information within the allotted time, is not unconditional can be widely used. Therefore, it is not advisable to exaggerate the offline payment.

It must be emphasized that all other forms of currency, except cash in kind, are based on the account, must ensure the continuity and accuracy of the account receipt and payment records. Even if DCEP is digital cash, it is no longer physical cash. It must also be established on the basis of the account, and it is impossible to handle receipt and payment directly without the account.

V. how to view the possible role and significance of DCEP

If the central bank's DCEP is just digital renminbi cash, and there is no way to replace it entirely in the short term (physical cash could be around for a long time, especially in poor communication areas), much of what is being said about DCEP is overdone.

First, DCEP can replace some of the cash, so it can reduce the cost of printing and circulating cash, improve operational efficiency and enhance compliance supervision. But it cannot replace all the cash soon, so saying "goodbye to cash" is too hasty.

Second, as digital cash, DCEP may have a very low proportion in the monetary volume (cash in circulation is less than 4% of the monetary volume now, and as a partial replacement for cash, DCEP will have a more limited scale). Therefore, even if DCEP is launched, it is impossible to reconstruct the traditional financial system, at least in the short term. In fact, the central bank's design of DCEP is important to avoid a major shock to the existing financial system, and therefore to increase risk and costs. Therefore, it is inappropriate to overstate the impact on the financial system, including payment companies.

Third, DCEP doesn't like COINS is completely without permission without borders block chain operation system, not may soon be a thing of the cross-border international payment and settlement system, and think they can build their own global clearing system, strongly promote the internationalisation of the renminbi, even the sword refers to dollar hegemony, etc., are too overestimate its function.

Fourth, even if China pioneered digital currency, will be able to lay their leading position in the field of digital currency and the voice on the rules, whether the digital currency makes China become the world's center of digital currency, depends entirely on whether China's technical scheme used by leading, and China is the world's leading international influence. In fact, if the RMB cannot become the international central currency, digital RMB DCEP can hardly become the international central currency.

Fifth, in order to implement the DCEP anonymous limited requirements, a deal is likely to be at the same time the information transfer operations and the central bank, and has a different information transmitted by the content, will be very complicated in the design and operation on May cost more than the current bank online banking or payment mechanism of mobile payment, whether has the comparative advantage and easy to get involved in the parties welcome worthy of attention. If there is no comparative advantage, it needs to be carefully considered whether administrative means should be used to enforce it.

Instead of cash, of course, if the central bank DCEP just start, in the same transaction information transmit operations as well as the central bank's operation is stable, to further promote the DCEP to alternatives to bank deposits, thus forming a "cash business operations in the operations, customers and trading information at the central bank" complete financial operation system, all the payments can transfer information for all the focus on the central bank, the central bank monetary regulation and monetary policy decisions provide great support and effective implementation, the central bank DCEP launch really has a great significance. That's probably where DCEP is really headed.

The above are just some opinions based on the relevant information obtained so far, which may differ from the actual situation of DCEP. Therefore, it is hoped that the central bank can release the white paper of DCEP's design as soon as possible, use the official authority statement to eliminate unnecessary speculation and wild interpretation in the society, and consider the modification of relevant laws and regulations in advance. It is also believed that the central bank will reserve a certain transitional period after issuing the management measures and implementation rules of DCEP, and strengthen the publicity, explanation and use training.

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