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Analysis of Zhou Xiaochuan: What is the future direction of global currency development?

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The development of science and technology has brought new opportunities and challenges to many business models. The modernization of payment systems and digital currency are the focus of great attention

Original title: "What is the future direction of global currency development?" Analysis of Zhou Xiaochuan"

Original source: Sina Finance

December 13, by Shanghai Advanced Institute of Finance, Shanghai Jiaotong University, National Finance and The 2020 Shanghai Financial Forum and the "Shanghai International Financial Center Construction Goals and Development Suggestions" report conference hosted by the Development Lab was held in Shanghai, with the theme of reform and opening up: the construction of Shanghai International Financial Center under the dual cycle. Zhou Xiaochuan, president of the China Society for Finance and Banking and former governor of the People's Bank of China, delivered a speech at the forum.

Zhou Xiaochuan said that when Libra was introduced last summer, some were condescending. It will be replaced, which has caused everyone to care about the issue of currency sovereignty, worry about dollarization or being replaced by other currencies, and worry about whether some basic measures required by some countries for their own macro-control can still be implemented smoothly. A lot of worries. Of course, it proposes to peg to a basket of currencies, but it does not give a very clear approach, so after a period of time, its revised second version is now only pegged to the US dollar, so many emerging markets and developing countries will worry about dollarization of.

You can see many examples of dollarization, some of which are relatively extreme dollarization. After Zimbabwe’s very high inflation, a relatively comprehensive dollar change. There are also many countries that are partially dollarized. According to the nature of their deposits or the nature of their currency use, tens of percent of the country's use may be in dollars, that is, it is partially dollarized. These countries will complain that there will be many problems due to dollarization, so this is a point that needs attention.

Zhou Xiaochuan pointed out that Hong Kong has launched RTGS. One is that the Hong Kong Supervisory Authority has designated HSBC to be in charge of USD clearing, Standard Chartered Bank to be in charge of Euro clearing, and Bank of China Hong Kong to be in charge of RMB. Liquidate, so they can take on the job. From the point of view of the Hong Kong system, Hong Kong and the mainland are in the same time zone, but not the same time zone as the U.S. dollar and Europe, so when crossing time zones, there will still be a small amount of exchange rate risk, but the ability of large commercial banks to control is still relatively strong , in addition to some risk management tools. In addition, the exchange rate changes within a day will be relatively small. Then there can be similar arrangements between central banks.

The special emphasis here is that the full amount is not necessarily required. Like RTGS, it is a real-time full settlement system. In fact, some things can be netted later transactional. It is also because of the time, you can deal with it on the same day, if everyone’s exchange rate is relatively stable, you can also deal with it after 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 they are relatively strong in using risk management tools and insurance.

Zhou Xiaochuan said that when Libra was introduced last year, it aimed at cross-border remittances. Although cross-border remittance is also a need, if cross-border remittance can be realized with a basket of currencies, or US dollars, and Libra technology, then after it lands, for example, those who work in the United States and send them back to Mexico, the money Can it be used in local retail, and can it be used for purchase? If the retail system does not support it, then it still needs to put the remitted money back to the local area. When it is returned to the local area, is there any possibility of exchange? Regarding the exchange rate issue, are there any policy obstacles and whether it is convenient. So the retail system and the payment system are still more basic content. If the retail system is done well, it will temporarily avoid everyone's worries about dollarization, like the solution just mentioned. So in this case, the remittance problem actually becomes easier to solve. Some of the obstacles to remittances are not technical but institutional.

At the moment of the remittance transaction, if the exchange is realized, then the exchange rate issue actually complies with the market rules during the exchange process, and less policy is involved obstacles. In addition, in this process, it is also possible to examine whether there is money laundering, whether there is terrorist financing, whether there are drugs, whether there is gambling, and so on. At the same time, if the remittance is once a month, or once every three months, the total amount will not be too large, and it is easy to review. This amount may be equivalent to regular, and will not cause capital or large amount of fraud. , Money laundering these acts.

He said that following the above-mentioned retail transaction, there should not be too many technical problems in remittance. Of course, in remittance, there will also be certain risk management issues, and exchange rate issues will also be involved. Best of all, 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 solutions and new innovations can have a more objective cost accounting.

"What is the direction of global currency development in the future? I don't think everyone can be sure. If there is a world currency in the future, Regardless of whether it is SDR or a variant of SDR, it may be a big country, such as the United States, which applies the US dollar all over the world. Since this situation occurs, according to the way we just thought, the adaptability of technology should not be a problem, and many solutions are It has a considerable degree of flexibility and can be adjusted in time to meet the needs of changes in the global financial landscape in the future," he said.

If you take advantage of the information acquisition and information processing capabilities of the transaction moment, you can do a lot of work in the modernization of the payment system and the facilitation of cross-border payments , and can be carried forward, that is to say, it has a relatively good connection with the existing system and the previously formed system, and it also has quite good adaptability backwards. This approach is similar to the ideas formed by Libra or Diem now. The obvious difference is also different from Token base digital currency. It embodies the strengths and benefits of account-based, two-tier banking system services.

The following is the speech arrangement

I would like to take this opportunity to talk about IT development to promote payment System modernization and facilitation of cross-border payments.

First of all, we would like 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 that "to accelerate the implementation of digital currency research and development", this is also a task for us, and I will use this to discuss my ideas in this regard.

Payment system, first of all, what things need to be done at the moment of payment, or at the moment of payment? Next, we can think carefully about the changes that new technological means will bring about in this respect. Especially for retail payment, at the moment of retail payment, consumers must first obtain the price, and use the price to consider whether to buy a certain thing or a certain service. If it is a cross-border transaction, it is also necessary to obtain information on the exchange rate, and then consider whether to buy it after conversion. If it is a cash transaction, it may be necessary to prepare cash in advance. If it is an account transaction, part of these transactions must be completed in an instant. If you use a credit card, you need to be authorized, and if you use a credit card, you also need to verify your identity.

The Ministry of Commerce needs to record sales tax or value-added tax when receiving money, so why are many retailers or many countries required to use it? cash register. In addition, after the transaction is completed, it needs to conduct financial accounting. When receiving currency, it also needs to consider whether it is counterfeit currency, whether the transaction is compliant, whether the transaction is real, etc. If it is a credit card or debit card, encryption is also required during the transmission of the information 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 some data processing.

Due to the limitations of communication facilities and computing power in the past, the information obtained at that time may be limited, and the content of processing cannot be too much, too much may not be able to handle . Processing is also divided into two types:

First, what can be processed on site, such as POS machines or mobile phones as mobile terminals Much more.

Second, upload it. Now there is cloud computing, but in the past it could be sent 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 transaction. This is the way to analyze the problem.

In the case of limited access to information and processing power, there are many things to be postponed before or after the event. The so-called push forward, for example, for consumers, if you want to make cross-border consumption, you have to put the foreign exchange in advance, and exchange your currency back to the foreign exchange of the destination country you want to reach. You'd better change a little 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 after you can't use it. When switching back, sometimes due to the different foreign exchange systems of various countries, you may still have certain difficulties.

In addition, in this process, no matter whether you change in advance or afterward, you need to bear the exchange rate risk. Of course, some people just put the rest in the drawer after the exchange. This kind of currency holding also has to bear risks.

For exchange, the current account of a country is often convertible, but the capital account is not necessarily so, so there are still limits for exchange in many places. There are also more or less annual quota regulations, and it is actually difficult to control if calculated on an annual basis. Therefore, due to the relatively large amount of the annual quota, its use cannot be controlled, and sometimes this use may not comply with the regulations. Some say it is an exchange of current accounts, but it is actually used for capital accounts.

We said that for merchants, if they use POS machines or cash registers, then they often have to collect things whether it is cash or accounts to the merchants afterwards At the same time, it is also conducive to the needs of taxation and financial analysis, such as accounting. Then the commercial bank will also play a very important role in this process. It may be the final delivery, especially when it involves the current payment tools, such as cards, mobile terminals, mobile phones, etc., which involves delivery and risk control. Cross-currency issues may also involve the central bank, which needs to do liquidation. Here commercial banks and the central bank may do some things after the transaction moment, which means that there is a lot of work to be done in advance or after the event.

We said that after the communication ability, information acquisition ability, and data processing ability are greatly improved, the workload distribution can be adjusted. This adjustment can do more things at the moment of the transaction, and it may make payment more convenient, especially cross-border payment can also be more convenient.

Of course everyone also said that the blockchain and distributed ledger system is a choice, of course it also involves the issue of currency, it also involves merchants should collect The issue of consumption tax or value-added tax is not as simple as paying cash in private and then doing nothing else, nor is it that simple.

The improvement of information acquisition and processing capabilities just mentioned can complete more work at the moment of transaction, or at the moment of transaction. One of the possibilities is to use The exchange rate work is carried out in this link, that is, when you buy, you will exchange the currency of a certain currency in your original account at this moment. The exchange amount is exactly the same as the commodity or service you want to buy.

In addition, information can be obtained more conveniently than before, and the first major information here is the exchange rate information. The exchange rate can be fixed on the first day, or the real-time exchange market information can be used. If it is the currency of some small countries, the exchange rate can also be used. In short, this is different from the previous conditions.

Another thing that is easy to control is the transaction scene. The merchant has a code, so he knows what his purpose is, so he can clearly distinguish whether it is a current account payment. No matter which country it is based on, whether the exchange rules are in compliance or not. So to this extent, it can also be said to be a smart contract.

Smart contracts should say that the simplest smart contract is a conditional statement, just if-then else, that is, under what circumstances can be exchanged, under what circumstances cannot be exchanged, Complete the payment, then you can take control. In this way, the amount of work before and after the event can be reduced, and it can be completed at the moment of the transaction through contemporary IT technology. This is more in line with the needs of Asia, especially emerging markets and developing countries.

When Libra was introduced last summer, it was somewhat condescending. After its currency comes out, it may be replaced by the currencies of many other countries in the future , causing everyone to care about the issue of currency sovereignty, worry about dollarization or being replaced by other currencies, and worry about whether some basic measures required by some countries for their own macro-control can still be implemented smoothly. In short, a lot of worries have arisen . Of course, it proposes to peg to a basket of currencies, but it does not give a very clear approach, so after a period of time, its revised second version is now only pegged to the US dollar, so many emerging markets and developing countries will worry about dollarization of.

So you can see many examples of dollarization, some of which are more extreme dollarization, we say Zimbabwe, after a very high inflation , a more comprehensive dollarization. Then there are also many countries that are partially dollarized. According to the nature of their deposits or the nature of their currency use, dozens of percent of the country’s use may be in dollars, that is, it is partially dollarized. These countries will complain that there will be many problems due to dollarization, so this is a point that needs attention.

Not long ago in China, Singapore, and Chongqing forums, I also said that the neighboring countries around China, we have China, Japan, and South Korea in East Asia, the following We have ten ASEAN countries, and the development levels of the ten ASEAN countries are also very different, and the macro-management levels of each country are also different, because the debt level is to a large extent, coupled with the balance of international payments, it will affect the country's foreign exchange system s Choice. Because the differences are huge, we should try our best to avoid doing work in this area, and don’t replace other people’s monetary sovereignty at every turn, causing their monetary and foreign exchange policies to no longer take effect.

In addition, taking into account the needs of various countries' macro-control, it can also take care of people's concerns about dollarization. It can be deduced from this that everyone is talking about the internationalization of the RMB. The internationalization of the RMB refers to the free use of the RMB. If you are willing to use it, you can use it in trade and investment. However, we do not seem to want to replace others like Libra. application in various aspects. Therefore, we say that some countries actually have concerns about the internationalization of the RMB. In fact, we can not touch these sensitive points, do not force it, and avoid the possibility of big country chauvinism.

On this basis, according to what I just said, if the exchange is realized at the moment of the retail transaction, and the review of the conditions for the realization of the exchange , if it is technically possible, it will bring a new operational possibility to interconnection.

In the past, when you used a credit card, for example, you have a credit card with a US dollar account, or a UnionPay card with a RMB account. It is also a convenience for you to exchange, but the information of this exchange is often not timely, and sometimes it is not transparent. We say that Visa and Master cards are willing to promise to give you preferential exchange rate treatment, but in fact, sometimes this is not necessarily the case.

We said 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 of the current account and the specific regulations are sometimes different. For example, from China’s point of view, we are like other countries in the world. Money laundering, terrorist financing, drugs, and arms trading are all prohibited and illegal. But each country also has different regulations. For example, China considers cross-border gambling transactions to be illegal, so you need to use conditional payment or smart contracts to control him during the implementation process.

There are also some ambiguous areas, that is, between the current account and the capital account, there are some ambiguous areas. For example, buying personal health insurance or property insurance abroad, as the Chinese management department clearly pointed out a few years ago, is illegal. Definitionally, sometimes it's not entirely clear. If it is possible to check the conditions at the moment of the transaction, and it is easy to do, because there is this merchant code, and in addition to the spending limit standards in different industries, then these conditions can be enforced, and through these executions The relevant compliance can be implemented for the exchange without being too complicated or taking too much time.

There is another advantage here, there are many supplementary cards. For example, in the case of supplementary cards of credit cards, the earner in the family is the main card, so his children may have supplementary cards, some of them go to school, some go out for travel, sometimes the self-discipline ability of non-adults is not enough, so Sometimes it is also necessary to have consumption restrictions, which ones are not allowed to be touched, which ones are not prepared to pay, and which ones to pay. What kind of limit is set for him at home, these things can be imposed through smart contracts or conditional payments. Finish.

One of the great benefits is that since the amount of a single transaction is relatively small, it is easier to see whether other people trade frequently, and it is also difficult to use small It is much easier to judge than before when the trading volume of the accumulated transactions is not compliant, such as doing capital projects, such as going out to speculate in the financial market.

For consumers, since it does not need to be exchanged in advance, nor does it need to be exchanged after it is not used up, so the exchange rate risk it faces is relatively large small.

As I just said, the workload before and after the event is greatly compressed, and there is more information acquisition and data processing workload at the moment of transaction , but in the end there is still some work to be done before and after the event. Afterwards work, there may still be cross-currency delivery issues after this. One of the deliveries is the delivery after netting, and the other is that the quantity after netting is relatively small. The central bank can designate a certain commercial bank to be responsible for the delivery and liquidation of a certain currency, or the central bank can directly Schema to arrange liquidation.

We know that Hong Kong is engaged in RTGS. One is that the Hong Kong Supervisory Authority has designated HSBC to be responsible for US dollar clearing, Standard Chartered Bank is responsible for euro clearing, and Bank of China Hong Kong is responsible for RMB clearing. That way they can take on the job. From the point of view of the Hong Kong system, Hong Kong and the mainland are in the same time zone, but not the same time zone as the U.S. dollar and Europe, so when crossing time zones, there will still be a small amount of exchange rate risk, but the ability of large commercial banks to control is still relatively strong , in addition to some risk management tools. In addition, the exchange rate changes within a day will be relatively small. Then there can be similar arrangements between central banks.

What I emphasize here is that it is not necessary to pay the full amount. Like RTGS, it is a real-time full settlement system. In fact, some things can be netted later for transactions. It is also because of the time, you can deal with it on the same day, if everyone’s exchange rate is relatively stable, you can also deal with it after 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 they are relatively strong in using risk management tools and insurance.

As mentioned just now, when Libra was launched last year, it aimed at cross-border remittances. Although cross-border remittance is also a need, we say that if cross-border remittance can be realized with a basket of currencies, or US dollars, and Libra technology, then after it lands, for example, those who work in the United States will be sent back to Mexico. Can this 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. Are there any exchange rate issues, are there any policy obstacles, and is it convenient. So we say that the retail system and the payment system are still more basic content. If the retail system is done well, it will temporarily avoid everyone's worries about dollarization, like the solution just mentioned. So in this case, the remittance problem actually becomes easier to solve. Some of the obstacles to remittances are not technical but institutional.

We can imagine that following the above-mentioned retail transaction, there should not be too many technical problems in remittance. Of course, in remittance, there will also be certain risk management issues, as well as exchange rate issues. Best of all, the financial institutions involved in both parties still need to arrange a certain fee, which can cover risks and operational costs, so that various new solutions and new innovations can have a more objective cost accounting.

Finally, what is the future direction of global currency development? I don't think everyone can see it accurately. If there is a world currency in the future, whether it is SDR or a variant of SDR, it may be a big country, such as the United States, which applies the US dollar to the world. Since this situation occurs, according to the way we just thought, the adaptability of technology should be It is not a problem, and many plans have a considerable degree of flexibility, which can be adjusted in time to meet the needs of changes in the global financial landscape in the future.

If we take advantage of the information acquisition and information processing capabilities at the moment of transaction, we can do a lot in terms of payment system modernization and cross-border payment facilitation work, and can be carried forward, that is to say, it has a relatively good connection with the existing system and the previously formed system, and it also has quite good adaptability backwards. This approach is similar to the idea formed by Libra or Diem now. There are obvious differences, and there are also certain differences from Token base digital currency. It embodies the strengths and benefits of account-based, two-tier banking system services.

The above is what I introduced in the payment system modernization and cross-border One option available in terms of payment facilitation.