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, Author: Baiyu, reproduced by Odaily with authorization.
It can be seen from the central bank’s public utterances about the central bank’s digital currency that since July and August this year, the utterances have been particularly intensive, indicating that the central bank is really not far from issuing China’s digital currency. At that time, China will become the first real digital currency. Sovereign countries that issue cryptocurrencies on the Internet.
Mu Changchun, director of the Central Bank's Digital Currency Research Institute, released the "Libra and Digital Currency" open class on Get last week, explaining in detail the characteristics and impact of Libra and the functional attributes and operating system of China's DC/EP. He said: "When I took this course, it was August 2019, and it was not too far away from the launch of our own digital currency by the People's Bank of China."
The course "Libra and Digital Currency" is divided into 8 lectures, all of which take nearly an hour and a half, and the manuscript is about 23,000 words. In order to facilitate readers to quickly understand the main content, the author condenses and refines important points, and adds his own thoughts and comments , but there are still 14,000 words. I originally wanted to divide it into two parts, but after overall consideration, I found that the division is not conducive to readers' understanding of the major impact of Libra once it is successfully implemented, and the significance of the Chinese central bank's implementation of digital currency. For the convenience of readers, the essence of director Mu Changchun’s viewpoints are summarized as follows:
Libra can be regarded as a potential world-class currency change, but if this change is not handled well, it is likely to be a huge hidden danger.
Libra cannot be a pure blockchain. Its bottom layer uses a centralized architecture. It only uses the blockchain at the final settlement layer, and there will not be many nodes, because the more nodes there are, the slower the speed will be.
It is difficult for Libra to achieve currency stability.
If Libra is to be successfully implemented as a stable currency, it means that Libra's founding association will not only play the role of Libra's central bank, but also evolve into a private international monetary fund. It has more influence than the IMF.
Libra's currency stability and organizational profitability are a paradox.
Libra faced great difficulties as a trading medium in a country in the early days, but this did not affect its prospects in cross-border payment scenarios.
Libra claims that it is inclusive finance and serves the people of countries with weak currencies. However, for countries with weak currencies, if the common people exchange a large amount of their own currency for Libra, it will push the currency to depreciate, thus exacerbating the poverty of those who only have assets in their own currency. , but did not achieve the purpose of inclusive finance they said.
In the vast majority of countries, monetary authorities are unlikely to welcome Libra. However, the negative attitudes of various countries may not stop Libra.
Central bank digital currency is on the horizon.
The central bank's digital currency does not depend on the network, does not need to be bound to any bank account when paying, and can realize offline payment and offline collection.
The central bank's digital currency has unlimited legal compensation. WeChat and Alipay can be rejected; DCEP cannot be rejected.
DCEP does not adopt blockchain technology at the central bank level, and does not preset routes at the commercial organization level. However, judging from the current progress of blockchain technology, in order to meet the retail-level concurrency requirements, commercial organizations may not be able to adopt blockchain technology. .
Entrepreneurs in Internet finance rarely consider risks, and Internet entrepreneurial thinking is not suitable for the financial field.
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Why is Libra so important?
"It's not too much to think of Libra as a potential world-class currency change, but if this change is not handled well, it is likely to be a huge hidden danger."
As the director of the Central Bank's Digital Currency Research Institute, Director Mu first expressed his high regard for Libra: "If you have already felt this kind of attention and tension, then I want to say that your feeling is right. This kind of tension is not unfounded, it has its real reasons and background. As a researcher of digital currency or encrypted assets, and as a central bank employee, I also think this matter is very important.”
First, let’s not talk about other organizations, just Facebook, plus its WhatsApp, has a total of 2.7 billion users. This means that its user base and its ability to mobilize society are huge. Second, Libra has a valuable backing, which means that it is very different from encrypted assets that used to be speculative tools, and it has the potential to become a currency in the usual sense. Third, it is not only targeting the United States, but all countries around the world.
It is no exaggeration to say that Libra is another milestone in the history of encrypted assets or digital currencies since the publication of the Bitcoin white paper in 2008.
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Is Facebook adopting a pure blockchain technology route?
"Libra circumvents the technical shortcomings of the blockchain and adopts a hybrid architecture, that is, a layered hybrid technology route that combines a centralized distributed processing architecture and blockchain technology."
After Mu Changchun’s comprehensive analysis of the defects of blockchain technology used for payment and the results of experiments on the code provided by the Libra community by the Central Bank’s Digital Research Institute, it is shown that Libra cannot be a pure blockchain, or that it is not fundamentalist. A kind of blockchain - it uses a centralized architecture at the bottom, and only uses the blockchain at the top, which is the final settlement layer. It is layered, because only layering can improve processing performance. The transactions at the bottom are all centralized processing, because of centralized processing, the speed will be very fast. When it reaches the top layer, which is the layer of final settlement, the It is the blockchain, and there will not be many nodes, because the more nodes, the slower the speed.
Mu Changchun came to such a conclusion because of the following reasons:
First of all, blockchain is not suitable for payment. The blockchain has four major flaws, poor scalability, high requirements for node storage, problems with security and privacy, and settlement finality. It is worth noting that the course mentioned that Chainalysis (which once assisted the FBI and CIA in uncovering several illegal transactions on the dark web) has mastered the real identities of more than 80% of the current Bitcoin traders. It relies on big data and exchanges Data, coupled with node data, digs out who you really are in the real world.
Secondly, after the release of the Libra white paper, the Mathematics Research Institute downloaded the Libra code released by Facebook in the development community and built a test environment. Many problems were found, and basically it did not work. At the same time, on the first day of the code release, Libra's development community submitted 52 questions, and it was later clarified that 33 of them were bugs. At present, Libra is still in a very early stage, and the code quality is not very stable, including some technologies that it has not disclosed. For example, it did not say whether it will use a high-speed dedicated network in the end, and how the nodes will be managed. At present, there is no feasible plan, not even a timetable.
Finally, based on the information currently available, the Institute of Mathematics has come to a conclusion: Libra circumvents the technical shortcomings of the blockchain and adopts a hybrid architecture.
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Can the value of Libra be stable?
"The so-called basket of currencies as a reserve asset cannot achieve currency stability. It will not only be affected by changes in the exchange rate between reserve asset currencies, but will also be affected by market confidence and expectations of it, just like any other asset. "
First, "asset reserves of a basket of currencies" and "linked to a basket of currencies" are two completely different concepts. Libra said that it will use the deposit of a basket of currencies as its asset reserve, but it did not say that it will be linked to a basket of currencies. (The peg means that the exchange rate between the two currencies will not change.) And we know that a basket of currencies as a reserve does not mean that the value of the currency is stable.
Second, even if it is changed to a peg, Libra does not have a mechanism to ensure that the proportion of a basket of currencies remains unchanged. If the proportion of a basket of currencies cannot be guaranteed to be constant, with the exchange between Libra and different legal currencies, Its currency value is naturally also changing.
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What role does the Libra Association play?
"Libra, as a stable currency, if it can be successfully implemented, it means that Libra's founding association will not only play the role of Libra's central bank, but also may evolve into a private International Monetary Fund, and in the private sector , it will have more influence than the IMF.”
First of all, in order to stabilize the currency value, if Libra is issued in the future, it is very likely that the exchange rate will be determined by the association, that is to say, its founding members will determine the exchange rate between Libra and other legal currencies. If the exchange rate is to be stable, it is necessary to control the proportion and exchange rate relationship between different currencies.
Secondly, if some weak currency countries will scramble to print money to exchange for Libra, this will cause chaos in the entire international monetary system. Therefore, a super-sovereign and credible international organization is needed to govern, such as the International Monetary Fund.
Once a loan is issued with Libra, what happens afterward? From the perspective of money and banking, there will be derived deposits, and with derived deposits, there will be a money multiplier. In other words, Libra is no longer limited to M0, it will expand to the field of M1 or M2. Now, Facebook itself says that it will reserve equivalent value for Libra, but this equivalent reserve is actually a reserve for the category of M0. But if it enters the credit market and expands to the scope of M1 and M2, there is no reserve for this part, which means that it cannot meet the 100% guarantee of currency exchange and stable currency value, and inflation may occur. At this time, it is necessary to have a neutral institution to accurately measure and control the currency multiplier to determine the equivalent reserve. This function can only be done by the central bank.
As a stable currency, if Libra can be successfully implemented, it means that Libra's founding association will not only play the role of Libra's central bank, but also may evolve into a private International Monetary Fund, and in the private sector, It will have more influence than the IMF.
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Currency stability and asset profitability are a paradox
"The profitability of assets and the stability of currency value are naturally in conflict between these two goals, and it is currently difficult to judge which side it will swing to."
The costs of system operation, dividends for founding institutions, and system upgrades are actually very high. For a liquidation institution, its annual operating costs cannot be handled without 1 billion or more than 2 billion yuan. According to Facebook's own white paper, Libra's asset reserve income does not pay interest to users, but the income generated by the assets to pay. Therefore, Libra has inherent asset profitability requirements, and the requirements for the rate of return are not low.
In the process of capital operation, this financial institution must emphasize stability. No accidents, no sharp rises or falls, and only low-risk, relatively stable asset portfolios can be bought. Generally speaking, only sovereign bonds or some 3A corporate bonds meet the requirements. For many government bonds, especially the sovereign bonds issued by some European countries, the current income status is basically negative. If Libra's reserve assets have relatively high requirements for profitability, then an active asset management model must be adopted, and assets with relatively high returns must be found, but high returns must mean high risks. This is contradictory to the positioning of the Libra stable currency.
That is to say, the profitability of assets and the stability of currency value are naturally in conflict between these two goals, and it is currently difficult to judge which side it will swing to.
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Can Libra become a strong currency?
"The costs brought about by exchange rate fluctuations, as well as the cost of pricing, will be more prominent in countries with strong currencies. Because a strong currency originally means that the legal currency of this country is stable and popular, and there is no need for local residents to use Libra for transactions. Therefore, like the United States or Euro countries, the space for using Libra as a medium of exchange will be relatively narrow.”
But as a trading medium, it also has great disadvantages. First, the currency value of Libra is unstable and the exchange rate fluctuates, because its reserve assets are a basket of currencies, not a single legal currency. Second, there are pricing costs. For example, in a country with a single legal currency, if you use Libra as a trading medium, it means that there are two parallel currency systems with prices. The same product will have two prices in the future. Card. Imagine that all products in a supermarket will have two sets of price tags, one for fiat currency and one for Libra. Because of exchange rate changes, it also means that supermarkets have to change Libra's price tags every day. This is too costly for merchants, including labor costs, and other costs that result.
To sum up, it can be basically concluded that Libra faced great difficulties as a trading medium in a country in the early stage. Especially in countries with strong currencies, the costs caused by exchange rate fluctuations and pricing costs will be more significant, because the legal currency of countries with strong currencies is stable and popular, and there is no need for local residents to use Libra for transactions. Therefore, like the United States or Euro countries, the space for using Libra as a medium of exchange will be relatively narrow.
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Cross-border payment is the biggest selling point of Libra, playing the banner of inclusive finance
Libra faces great problems as a transaction medium within a country, but this does not affect its prospects in cross-border payment scenarios. In the current international remittance system, such as Swift, moneygram, and Western Union, there are problems with high handling fees and long time periods, and the experience is not good. Coupled with the factors of foreign exchange control, for example, each person in China cannot exceed 50,000 US dollars a year, and the purpose of foreign exchange must be filled in. If you want to study abroad, you must provide the name of the school; if you want to travel, you must also fill in the travel agency and The name of the hotel etc. This adds friction. These have led to a bad experience in traditional cross-border remittances.
Libra claims to solve the problem of remittance convenience for people all over the world, especially people in developing countries, thus setting up the banner of inclusive finance. Facebook itself is a large global platform. Between two Facebook users, one may be in the United States and the other may be in Australia. But for Facebook, it is a platform. Its social functions, social attributes and huge user base will lead to a very high starting point once the product is launched. Why does Libra use a basket of currencies as a reserve asset? Why not just use the dollar as a reserve asset? In fact, it is for cross-border payment, and it is to tell you that anyone can exchange with their own currency.
However, there are many reasons for the high fees and costs of traditional cross-border payments, one of which is the regulatory costs brought about by regulation. This part is unavoidable no matter what new technology you use. Therefore, at the Libra hearing, the Federal Reserve, the Treasury Department, several U.S. regulatory agencies, and Congress all raised objections to it, especially emphasizing the fear that Libra would be used for money laundering and terrorist financing. The cost that comes, will not disappear just because you adopt a new technology.
If regulatory costs are unavoidable, how can Libra achieve the convenience of remittances for people all over the world? That remains to be seen.
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Currency Substitution for Weak Currency Countries?
Assuming that cross-border transactions have made a relatively large breakthrough and formed a network effect, everyone will use Libra for cross-border remittances. Will it cause Libra to expand from cross-border scenarios to local scenarios and local payments?
Although it is said that Libra does not have much space in strong currency countries, will it be attractive to some developing countries, especially weak currency countries? Because in countries with weak currencies, people's confidence in Libra is likely to be much stronger than their confidence in their own currencies.
This logic is established, but it is also more complicated here. From the perspective of currency development history, there has always been a phenomenon that bad money drives out good money.
That is to say, in the function of trading medium, bad money may drive out good money, but in the function of value storage, good money drives out bad money, that is, in countries with weak currencies, everyone will be willing to hold Libra. And generally speaking, countries with weak currencies are often developing countries with underdeveloped financial markets, and they themselves lack assets with relatively high liquidity and security. Therefore, Libra may be used in countries with high inflation and unstable exchange rates. 1. Countries with depreciation expectations become a safe asset choice for local residents, thus forming a currency substitution. That is to say, ordinary people are no longer willing to hold their own currency, but are willing to hold Libra. Just like in some countries, people are more willing to hold US dollars.
Of course, there is actually a paradox here. Libra claims that it is inclusive finance and serves the people of countries with weak currencies. But for countries with weak currencies, if ordinary people exchange a large amount of their currency for Libra, it will push the currency to depreciation. The depreciation of the national currency will make those with low income even poorer, because their assets are all denominated in the local currency, or they hold assets in the local currency. For example, it is impossible for you to move a house abroad to sell . This kind of assets will shrink sharply due to the depreciation of the local currency, so it will only exacerbate the poverty of those who only have local currency assets, but it will not achieve the purpose of inclusive finance they said.
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If Libra wants to enter countries with weak currencies, it will definitely encounter problems that the governments of these countries do not welcome. Except for extreme examples, a country like Zimbabwe announced last year that it welcomes any currency, which is tantamount to giving up its own monetary sovereignty. But apart from this extreme situation, some other countries with weak currencies, such as Thailand or Vietnam, if they really allow Libra to enter, it is equivalent to handing over the initiative of their own monetary policy and exchange rate policy to others, because You can't control this currency, you can only control your own currency.
Therefore, in most countries, monetary authorities are unlikely to welcome Libra. So we can also see that after Libra came out, in fact, the monetary authorities and regulatory agencies of various countries basically have a negative attitude: either you must be included in the supervision, and no supervision will not work, or you will definitely have a negative impact on me. , I won't let you in. Of course, there are some countries that are afraid of being accused of hindering innovation. At most, I need to observe and observe, but no one will say that I welcome Libra to come to me.
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Negative attitudes from various countries may not be able to stop Libra
But it doesn't mean that Libra can be blocked if regulation is not welcome. Even if the government has said that I do not allow you to use it in your country, it can only do that all payment institutions and commercial banks in the country will not provide exchange services and payment services for Libra. However, there are still people who can use other methods to buy Libra abroad, and it is impossible to completely ban it.
Even in China, it is difficult. Although China cannot even enter Facebook itself, once Libra is released, there will definitely be some people who will buy Libra through some twists and turns. Just look at bitcoin. In fact, our country has not allowed bitcoin to operate in China for a long time, and the exchanges have also blocked it. We have also notified all payment institutions and commercial banks that they are not allowed to provide corresponding exchange and payment services for bitcoin, but There will still be some channels that say "I'll help you buy it" or "I'll help you buy bitcoin", you only need to give them RMB, and then they will go over the wall to foreign exchanges to buy.
It is even entirely possible that when it develops well as a payment tool, it will further break away from reserve assets and become a credit currency. In fact, modern credit currency has also developed in this way. For example, the British pound was originally issued by a private bank, that is, bank notes issued by the Bank of England. Later, it became credit currency and national legal tender. If Libra is accepted by everyone and becomes a popular payment tool, it is entirely possible to develop into a world-class super-sovereign currency after a period of time.
The above is Mu Changchun's discussion. Seeing this, I believe readers have felt the central bank's concerns about Libra. This is no longer a small conspiracy, but a big conspiracy by Facebook holding the banner of inclusive finance and technological innovation.
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DC/EP: How far is China's own digital currency?
"Our digital currency project is called DCEP (Digital Currency Electronic Payment), that is, digital currency and electronic payment tools. When I took this course, it was August 2019, and the People's Bank of China launched our own digital currency. It's not very far away."
In the middle of this year, Mu Changchun also publicly stated that "the central bank's digital currency is coming soon." In addition, the recent intensive media reports can also provide us with some useful information for spying on the central bank's digital currency.
On August 20, the English version of China Daily published an article stating that officials and experts said that China is testing various ways to launch China’s first central bank digital currency (CBDC), and they expect private institutions to be more involved in creating government-backed currency. Experts predict that if all goes well, the Chinese government-backed digital currency could come before Libra’s official launch.
On September 5, according to CoinDesk, a dedicated team from the Digital Currency Research Lab of the People's Bank of China is currently developing a digital currency system in a closed-door environment, and the "closed-loop test" of the central bank's digital currency (CBDC) has begun. , the mock tests involved several commercial and non-government agency payment scenarios.
It can be seen from the central bank’s public utterances about the central bank’s digital currency that since July and August this year, the utterances have been particularly intensive, indicating that the central bank is really not far from issuing China’s digital currency. At that time, China will become the first real digital currency. Sovereign countries that issue cryptocurrencies on the Internet.
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The Mystery of Central Bank Digital Currencies
"You can imagine such a scenario: as long as you and I have DCEP digital wallets on our mobile phones, we don't even need the Internet. As long as the mobile phone has power, two mobile phones can touch the digital currency in one's digital wallet. , transfer it to another person. That is to say, when you pay, you don’t need to bind any bank account. Unlike we now use WeChat or Alipay, we have to bind a bank card, but DCEP does not need it.”
In terms of functions and attributes, DCEP is exactly the same as banknotes, except that its form is digital, and its definition is translated as "a digital payment tool with value characteristics". Simply put, it means "value transfer without an account". In fact, one of the most fundamental advantages of DCEP for encrypted assets like Bitcoin is to get rid of the control of the traditional bank account system, because it is just an encrypted string. From this point of view, DCEP also has the same advantages.
However, the biggest difference between the central bank's DCEP and private encrypted assets such as Bitcoin is that the central bank's digital currency is a legal currency and has unlimited legal compensation, which means that you cannot refuse to accept DCEP. We see that private payment institutions or platforms now set up various payment barriers. Where WeChat is used, Alipay cannot be used, and where Alipay is used, WeChat cannot be used. But for the central bank’s digital currency, as long as you can use electronic payment , you must accept the central bank’s digital currency.
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What is the difference between DCEP and Alipay and WeChat Pay?
"In theory, commercial banks may go bankrupt, so the People's Bank of China has established a deposit insurance system over the years; but if WeChat goes bankrupt, the money in WeChat's wallet has no deposit insurance, and you can only participate in its bankruptcy liquidation. For example, you had 100 yuan before, but now you can only pay back 10 cents, and you can only accept that it is not protected by the central bank’s lender of last resort. Of course, this possibility is very small, but you cannot completely rule it out. "
First of all, in terms of legal rights, the effectiveness and security of DCEP are the best. DCEP belongs to M0, which is a liability of the central bank and is legally repayable. But when you use Alipay or WeChat for electronic payment, you use Alipay's e-wallet and WeChat's e-wallet. They are not settled in central bank currency, but in commercial bank deposit currency. Of course, the situation changed after the reserve funds were deposited in a centralized manner. In other words, WeChat and Alipay have not reached the same level as banknotes in terms of legal status and security.
Secondly, in some extreme cases, it is still necessary to use the central bank's digital currency or banknotes, and the central bank's DCEP can achieve "dual offline payment".
For example, in a major earthquake, communication is cut off, and of course electronic payment will not work. At that time, there were only two possibilities left, one was paper money, and the other was the central bank's digital currency. It can be paid without a network. We call it "dual offline payment", which means that both the payment and payment parties are offline, and payment can also be made. As long as your mobile phone has power, you can pay even if the entire network is cut off. We can also talk about some less extreme situations that you can perceive. For example, if you go to an underground supermarket to buy things, there is no mobile phone signal, and WeChat and Alipay cannot be used. Or, there is no signal on the plane. If you take a low-cost airline flight, you need to pay for meals. In this scenario, you can only pay with a credit card, but you can also pay with the central bank’s digital currency in the future. . But this cannot be done with a digital currency like Libra.
Of course, some people may also ask, will DCEP affect the status of Alipay and WeChat? Mu Changchun's answer was: no. Because Alipay and WeChat also use RMB for payment at present, in fact, they are paid in the currency of commercial bank deposits. After the central bank's digital currency was launched, it was only replaced with digital renminbi, that is, the central bank's deposit currency. Although the payment tools have changed and the functions have also increased, the channels and scenarios have not changed.
The following is a comparison table of the functions and characteristics among the four payment tools of banknotes, DECP, Alipay and WeChat made by the author based on public information. Readers can use the table below to see what are the differences between these four payment tools.
Table 2 Functional characteristics of payment tools
It is still unknown whether there will be a handling fee for the conversion of legal currency to DCEP and the conversion of DCEP to legal currency. Assuming that there is no handling fee, considering that there is a handling fee of 1/1000 regardless of Alipay balance withdrawal or WeChat change withdrawal, and DCEP has legal compensation, anonymity and dual offline payment functions, then what tool will the public choose for payment? Woolen cloth? What is the significance of the existence of WeChat Pay and Alipay? Although Director Mu believes that the launch of the central bank's digital currency will not have any impact on WeChat Pay and Alipay, but after careful consideration, this is indeed a question worth pondering.
In addition, Ali and Tencent may be among the first list of institutions allowed to operate DCEP assets. How they will respond to the central bank's digital currency, I think this is also a very interesting variable.
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Why does the central bank still make digital legal currency when electronic payment methods are so developed today?
First of all, in order to protect our monetary sovereignty and legal currency status, we need to plan ahead.
Thirdly, apart from the fact that criminals don’t want others to know, or you may have some consumption that you don’t want others to know, and you use cash specially, most people now need to use cash less and less. Of course, as long as you don't commit a crime and you want to make some consumption that you don't want others to know, we still have to protect this kind of privacy. That is to say, the public actually has a need for anonymous payment, but current payment tools, such as Internet payment and bank card payment, are tightly bound to the traditional bank account system, which cannot meet the need for anonymity, nor It is impossible to completely replace the payment of cash, that is, the payment of paper money.
Therefore, the central bank's digital currency can solve these problems. It can not only maintain the attributes and main value characteristics of cash, but also meet the requirements of portability and anonymity.
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How does the central bank's digital currency prevent money laundering?
For example, many transactions involving money laundering have behavioral characteristics. For example, a large number of gambling activities occur after 12 o'clock at night, and all gambling transactions have no fractions, and they are all integer multiples of ten. Generally speaking, a small amount is used at the beginning, and it gets bigger and bigger, and suddenly the cliff disappears, that is, there is no transaction, which means that you have lost everything, which is in line with the characteristics of general gambling. The same is true for telecommunication fraud. If a large amount of scattered money is concentrated in one account, then suddenly and quickly disperses and disappears in many accounts, this is in line with the obvious characteristics of telecommunication fraud. After we analyze the characteristics of these transactions, we can then use big data and data mining technology to perform identity comparisons to find out the person behind.
Therefore, for the sake of anti-money laundering, the central bank also has grading and limit arrangements for digital wallets. For example, if you register a wallet with a mobile phone number, then your wallet can of course be used, but the level must be the lowest, which can only meet daily micropayment needs; but if you want to be able to upload your ID card, or upload another If you have a bank card, you can get a higher-level digital wallet. If you can still go to the counter to sign, then there may be no limit.
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What is a two-tier operating system?
To put it simply, the upper layer is the People's Bank of China to commercial banks, and the lower layer is the commercial banks or commercial institutions to ordinary people. You can understand the delivery process of DCEP in this way: it is the same as banknote delivery. How are banknotes distributed? After the People's Bank of China prints it out, the commercial bank pays the money issuance fund to the People's Bank of China, then transports the banknotes to outlets, and then ordinary people go to the outlets to exchange them for cash. This is such a process.
The exchange of digital currency will still maintain this structure: commercial banks open accounts at the central bank and pay 100% of the reserve, and individuals and companies open digital wallets through commercial banks or commercial institutions. Moreover, DCEP is a replacement of M0, that is, a replacement of banknotes, not M1 and M2, which means that the central bank digital currency held by the public is still a liability of the central bank, and the central bank provides credit guarantees, which is legally repayable.
Of course, just like withdrawing cash, the central bank will also set certain frictions in accordance with the current cash management regulations. For example, if there is a financial crisis, or if a certain bank has a payment problem, everyone may run for cash, queuing up to withdraw deposits from the bank. In order to avoid this situation, the bank may set some thresholds. For example, if you exchange cash, it is no problem to withdraw a small amount directly, but if you withdraw a large amount, such as 500,000, then you need to make an appointment in advance. The same is true for digital currency s arrangement.
What Mu Changchun explained here is actually very specific, revealing many details. However, there are still many details that we need to wait for time to give answers, such as whether the second-tier institution needs a handling fee when processing DCEP to exchange bank account balances or banknotes; commercial banks or institutions need to process the exchange of DCEP on the APP or offline outlets Does it mean that like every bank has its own mobile banking app now, each institution will have an app for launching and processing DCEP transactions; what information will these apps record, who will control the information, and so on.
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Why use a two-tier operating system for DCEP research and development and exchange?
We adopt a two-tier operating system, which itself is to fully mobilize the enthusiasm of the market, use market mechanisms to realize resource allocation, and mobilize the enthusiasm of commercial banks and commercial institutions.
On the other hand, although the central bank has also established many of its own systems, such as the existing large-amount payment system, retail payment system, super online banking, UnionPay, NetsUnion, etc., they are all developed and operated under the leadership of the central bank. Accumulated relevant experience. However, the users of these systems are originally banking institutions and financial institutions, and have not directly faced ordinary people. If the People's Bank of China wants to develop such a large system that directly faces the common people, it must not only satisfy the user experience, but also achieve high efficiency of the system. The People's Bank of China will face objective constraints on its own budget, resources, and talents.
However, commercial banks and some other commercial organizations are relatively mature in terms of IT infrastructure applications and service systems, have accumulated a lot of experience in financial technology, and have a relatively sufficient talent pool. There is no need to abandon the existing business The bank's IT infrastructure needs to be rebuilt and built again. So this is why the central bank chooses a two-tier operating system.
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Avoid financial disintermediation
Another consideration of the two-tier operating system is to avoid financial disintermediation.
What is financial disintermediation? If we adopt a single-tier operation, the People's Bank of China will issue digital currency directly to ordinary people, which means that the People's Bank of China will become a competitor of commercial banks.
Because ordinary people exchange digital currency, they will transfer the deposits of commercial banks to the People's Bank of China. In this case, the financing costs of commercial banks will increase, and the real economy will be damaged as a result. Moreover, the People's Bank of China directly issues currency to ordinary people, and all the information of ordinary people is stored in the People's Bank of China. What does that mean? It means that the People's Bank of China knows the credit status of everyone and every enterprise, and also knows how much you earn and spend every month, and what your source of funds is. The People's Bank of China has all these data. In other words, the People's Bank of China can replace commercial banks in all financial services.
If you are older, you may remember that before 1984, there was only one bank in China, the People's Bank of China. This is what financial disintermediation is talking about. So if we adopt a single-tier operation, does it mean that we don't need commercial banks? No need for a financial intermediary? Wouldn't it be more efficient for the People's Bank of China to lend directly and do all the financial business without friction in the middle? You will find, what is this like? Like a planned economy.
We oppose the planned economy, not to say that we are market fundamentalists, but a conclusion drawn after certain research and practice. Yugoslavia made such an attempt back then, and the lessons learned are very painful. . Therefore, it does not mean that more information and more data can lead to a planned economy. Because the planned economy has no competition and no incentive mechanism, once something goes wrong, it will be a big problem.
We adopt a two-tier operating system, which itself is to fully mobilize the enthusiasm of the market, use market mechanisms to realize resource allocation, and mobilize the enthusiasm of commercial banks and commercial institutions.
secondary title
What technical route does DCEP adopt?
"The essence of DCEP is a substitute for cash. Although at the level of the central bank, we have not adopted blockchain technology, we have taken out the core of the blockchain, that is to say, it is a digital payment tool with value characteristics. , Value transfer can also be carried out without accounts, which can meet the controllable and anonymous payment needs.”
This sentence shows that in the DCEP two-tier operating system, at the level of the People's Bank of China to commercial banks, blockchain technology is not used.
As we said earlier, Libra is a hybrid architecture. Although DCEP is also a hybrid architecture, our hybrid architecture does not have a preset technical route. The level of the central bank is technology-neutral, that is to say, the central bank will not interfere with the technical route selection of commercial institutions. When commercial institutions exchange digital currency for ordinary people, what technology will they use to exchange? Is it to use the blockchain or the traditional account system? Is it an electronic payment tool or a mobile payment tool? No matter which technical route is adopted, the level of the central bank can adapt. As long as commercial organizations can meet our requirements for concurrency, customer experience, and technical specifications, no matter what technical route they take.
This passage tells us that at the level of commercial institutions facing users, that is, the operating platform for users to exchange DCEP and use DCEP for transactions, the central bank does not presuppose the technical route, and it is left to market institutions to choose by themselves. The central bank's requirement is to meet retail-level concurrency, as well as experience and technical specifications.
The initial practice of Libra shows that the final settlement layer using blockchain technology can only meet the concurrency requirements of cross-border remittances even under extremely ideal conditions, while my country's DCEP requires commercial organizations to achieve retail-level concurrency performance requirements. So, when commercial organizations exchange digital currency for ordinary people, what technology do they use to exchange it? Is it to use the blockchain or the traditional account system? Is it an electronic payment tool or a mobile payment tool?
Based on the above analysis, the author believes that the central bank does not adopt blockchain technology, and commercial organizations do not preset routes. However, judging from the current progress of blockchain technology, commercial organizations may not be able to adopt it in order to meet retail-level concurrency requirements. blockchain technology.
secondary title
Internet entrepreneurial thinking is not suitable for the financial field
Mu Changchun said: "I was asked a question: For example, does a company as big as Facebook have the ability and willingness to take social responsibility and pay attention to financial security and stability?"
"My understanding is that in the field of finance, Internet entrepreneurs, even Internet companies as large as Facebook, lack proper risk awareness."
First, the financial industry has particularly strong externalities.
In the financial field, you use other people's money to do this, and you use the public's money to add leverage to do this. If something happens, it is not the problem of these few people, but a systemic problem. This is why anyone who has traditionally done finance, before doing anything or starting any new business, will first ask a question: Is there any risk? He doesn't ask if it will make money in the first place. So you can see that all banks are relatively slow in launching new businesses and new projects. But this is completely different from the lean entrepreneurship and small-step thinking mode advocated by Internet innovation. The same goes for finance, and the social cost will be huge. Of course, it’s okay if your product breaks out and succeeds, but many things fail. An example is P2P. In China, it can be said that it has completely become the biggest financial risk in the past two years, and it has been governed. Some of the losses it brings to the common people are the destruction of their families.
Secondly, Internet finance entrepreneurs seldom consider risks.
You should know that for the entire Internet finance, it has not yet gone through a complete financial cycle, and a financial cycle is longer than the economic cycle. Before passing a complete financial cycle test, many Internet financial products will have great risks. For example, many Internet financial institutions like ours now say, look, I can achieve "310", that is, lending money in three minutes, receiving money in one minute, zero personal review, and the bad debt rate is still very low, a few tenths. But you need to know that these things are all done in an environment with sufficient liquidity. It has not been tested in a complete financial cycle. Once the liquidity is not good, there may be large areas of failure to repay Circumstances lead to the failure of a product, or even bring down the entire system.
