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Zhou Xiaochuan: Why is DCEP different from G7 central bank digital currency

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The G7 pays more attention to cross-border payments and responding to Libra, while DCEP pays more attention to improving the domestic retail payment system.

Original title: "Zhou Xiaochuan: Why is DCEP different from G7 central bank digital currency"

Original source: First Finance and Economics

< p>On October 30, Huawei announced that its latest Mate 40 series mobile phones can support the "digital RMB hardware wallet" function in accordance with the unified standards of the Central Bank's Digital Currency Research Institute; The "RMB" red envelope made China's DCEP (Digital Currency Electronic Payment, Digital Currency Electronic Payment) popular across the entire network. In the same period, on October 9, the central banks of the G7 member countries and the Bank for International Settlements (BIS) jointly released the report "Central Bank Digital Currency: Basic Principles and Core Features" (hereinafter referred to as the "Report"), which also made the world's attention to the seven countries' central banks. The direction of CBDC (Central Bank Digital Currencies, central bank digital currency) has attracted attention.

Is there any difference between China's DCEP and the G7's CBDC? Zhou Xiaochuan, chairman of the Boao Forum for Asia, gave an explanation at the 2nd Budapest Eurasia Forum held recently. In his opinion, there is a significant difference in definition between the above two. The G7 pays more attention to cross-border payments and responding to "Libra", while DCEP pays more attention to improving the domestic retail payment system. The G7 hopes to find the optimal solution for the central bank's digital currency, and DCEP is a two-tier, dynamic mid-term evolution system. DCEP gives more incentives to the second-tier institutions and requires them to take on more responsibilities.

DCEP VS CBDC

DCEP stands for Digital Currency Electronic Payment, which is the Chinese version of the central bank digital Currency project, as can be seen from its name, represents the dual attributes of digital currency and electronic payment tool.

For the difference between DCEP, the Chinese version of digital currency, and the central bank’s digital currency project of the G7 Group, Zhou Xiaochuan explained two major differences in the above forum: one is " The G7 pays more attention to cross-border payments and responding to "Libra" (Libra), and DCEP pays more attention to improving the domestic retail payment system"; the second is "The G7 hopes to find the best solution for the central bank's digital currency, and DCEP is a two-tier, A dynamic medium-term evolutionary system. DCEP gives more incentives to the second-tier institutions and requires them to take more responsibilities.”

How should these two differences be understand?

First of all, in terms of the focus of the above two From the point of view, its starting point for the definition of central bank digital currency is more to deal with currency globalization.

This report highlights three fundamental principles for issuing a CBDC: do no harm, coexistence, innovation and efficiency. Specifically, it should not impede the central bank's ability to fulfill its mandate to maintain monetary and financial stability; it should complement cash and other forms of money and coexist in a richer payment system; and CBDC should promote innovation and efficiency , in the payment system, private institutions (commercial banks or other payment institutions) are also indispensable.

As Zhou Xiaochuan said, "The Group of Seven countries pay more attention to cross-border payment", in this report, the content of CBDC in cross-border payment is highlighted discuss. The G7 stated in the report that cross-border payment involves many participants, time zones, jurisdictions and regulations, so it will be characterized by inefficiency, opacity and high cost. An interoperable CBDC system will facilitate cross-border, cross-currency payments.

In terms of DCEP, it can be seen that the current pilot and application directions are mainly concentrated in domestic retail payment scenarios. Zhou Xiaochuan believes that everyone needs to figure out cross-border payment. The current technology and system are passable in terms of digital currency cross-border payments in trade, investment, financial transactions, etc., but for tourism, online shopping and other industries, cross-border payments for current accounts still have technical deficiencies. In cross-border payments, it is necessary to respect the local digital currency issuance sovereignty, exchange rate system and exchange rules. If retail payment in the local market is already popular, it can be considered that there is no technical difficulty in digital currency payment. In other words, before cross-border payment, it is necessary to build a solid foundation for retail payment in China, and focus on current account payments in industries such as tourism, and avoid dollarization of digital currencies. In terms of promoting the internationalization of RMB, it is also necessary There is no need to rush.

In November last year, Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, also publicly stated that the Chinese version of the central bank's digital currency is neither aimed at cross-border Payments are also not used for wholesale funding services like "JP Morgan Coin" (a cryptocurrency created and successfully tested by JPMorgan Chase itself), but to provide more redundancy for China's current already very advanced electronic payment system.

Tobias Adrian, director of the IMF's monetary and capital market department, also said in an exclusive interview with a reporter from China Business News this month: "Now China's pilot projects mainly focus on domestic applications. My understanding is that , the plan of the People's Bank of China is still to focus on the domestic market first, while cross-border involves the issue of full convertibility of currencies. In this regard, we need to do more work to realize the convertibility of digital currencies. There is still a lot of coordination work to be done at the international level. Do it."

Double-layer structure of DCEP

The second difference Zhou Xiaochuan said It focuses on the nature of the Chinese version of DCEP and the CBDC of the Group of Seven. Zhou Xiaochuan said: "The G7 hopes to find the best solution for the central bank's digital currency, and DCEP is a two-tier, dynamic mid-term evolution system. DCEP gives the second-tier institutions more enthusiasm and requires them to take more responsibilities."

From the design structure of DCEP, DCEP adopts a two-tier operating system. The first layer is that the central bank releases DCEP to commercial banks and other authorized commercial institutions, while the second layer of commercial banks and other institutions then issue and exchange to the public and are responsible for operations. Like traditional cash, banks are still the main force in issuing DCEP.

Source: "Financial Technology Micro-Insight" public account

In this two-tier operating system, it is still the central bank's centralized management model. To avoid the formation of financial disintermediation, the central bank endorses the value of the digital renminbi based on supervisory and safeguard measures (such as reserve requirements and capital adequacy ratio requirements). Mu Changchun once said that the natural attribute of encrypted assets is decentralization, but the central bank’s digital currency must adhere to the centralized management model for the following reasons: First, the central bank’s digital currency is still a liability of the central bank to the public. Therefore, it is still necessary to ensure the central position of the central bank in the delivery process; second, in order to ensure and strengthen the central bank’s macro-prudential and monetary regulation functions, it is necessary to continue to adhere to the centralized management model; third, the second layer designates operating agencies to carry out Currency exchange requires centralized management to avoid over-issuance of currency by designated operating agencies; finally, because the binary account system has not been changed during the entire exchange process, the original monetary policy transmission method should be maintained, which also needs to be maintained The status of central bank management.

For the second-tier commercial banks, payment institutions and operators authorized by the central bank, the design of DCEP has given more enthusiasm, There is no unified regulation on its technical route, it can be chosen by itself and is not static, and it develops dynamically with the development of RMB. But at the same time, in addition to being responsible for the exchange and operation of digital renminbi, the second-tier organization also needs to be responsible for the compliance of user data privacy. In this regard, Zhou Xiaochuan believes that some applicable regulations in the European General Data Protection Regulation can be absorbed. Maximize the balance between data anonymity and compliance.

In addition, in the design of DCEP, this controllable anonymity mechanism is adopted, and the payment information is backed up to the central bank. Data, artificial intelligence and other technologies analyze transaction data and capital flows, serve anti-money laundering, prevent terrorist financing, combat fraud or tax evasion and other illegal and criminal activities, and effectively maintain financial stability.

China’s digital currency process is leading

Compared with G7 countries, the DCEP of the People’s Bank of China started Earlier progress was faster, and we are starting to cooperate with major Internet companies to explore landing scenarios.

"The proportion of the digital economy in the economies of various countries continues to increase, and digital currency has become an important issue. China is at the forefront of the world in digital currency research and development." Zhou Ogawa said on the above-mentioned forum.

Adrian also said in the interview: "China's digital currency pilots lead the world, and the IMF pays close attention to China's digital currency pilots in some urban areas."

As early as 2014, the People's Bank of China began to explore digital currency; in 2016, the Central Bank Digital Currency Research Institute was established; Shenzhen, Suzhou, Xiong'an, Chengdu and the future Winter Olympics scenes will conduct internal closed pilot tests of "four places, one scene". In addition to several major state-owned commercial banks, China Mobile, China Telecom, China Unicom and other non-bank institutions also participated in the pilot.

In July this year, the Central Bank’s Digital Currency Research Institute and Didi Chuxing formally reached a strategic cooperation agreement to jointly research and explore the scenario innovation and application of DCEP in the field of smart travel. And in October of this year, the Shenzhen government and the central bank launched a digital renminbi red envelope pilot project, and a certain amount of funds will be distributed in the form of digital renminbi to personal digital renminbi wallets in Shenzhen through lottery. The public can hold this part of digital renminbi within the validity period Going to designated merchants in Luohu District for consumption has set off an upsurge of public attention to digital renminbi.

Compared to the gradual implementation of China's DCEP, this report by the seven central banks is only the first phased research result since the establishment of a joint working group with BIS. The report clearly stated: "This report is not about whether or when to issue a CBDC. Central banks will make decisions on their authority (in consultation with the government and stakeholders)." Seven central banks stated in the report that they will further study Feasibility of issuing a CBDC, but did not commit to whether and when.