On September 24, Di Gang of the Central Bank’s Digital Research Institute stated at the “Blockchain and Digital Economy Development Forum” that the Digital Currency Research Institute has focused on the specific practice of blockchain in recent years.
For example, at the issuance layer of the digital renminbi, build a unified distributed ledger based on the blockchain, improve the efficiency of reconciliation, and actively explore blockchain applications in the digital renminbi system.
In addition, with the support of the Bank for International Settlements Innovation Center, the multilateral central bank digital currency bridge project was launched. At the same time, with the support of the Ministry of Science and Technology, the central bank's trade finance blockchain platform also focuses on the application of blockchain.
On the same day, Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, also stated at the 10th China Payment and Clearing ForumThe digital renminbi is a public product provided by the People's Bank of China for the domestic retail payment market. Its original intention is to promote the development of financial inclusion.At present, there is still a "digital divide" in the field of payment inclusiveness, and the digital renminbi pilot process is also constantly implementing financial inclusiveness.
It can be seen that the deployment of digital currency in our country is gradually advancing. Since the internal testing of digital renminbi in developed cities in China in 2020, more than 200 million digital renminbi red envelopes have been issued. It is not only as simple as sending out red envelopes for everyone to experience , JD.com, Meituan, Station B, SF Express and other major manufacturers, as well as subways in some areas mentioned at the beginning, have all started pilot projects, covering all aspects of our daily necessities of life.
It can be said that the digital renminbi is getting closer and closer to us, and is being integrated into our lives in all aspects. In fact, not only our country, but all over the world are deploying central bank digital currency.first level title
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What is a Central Bank Digital Currency?
CBDC is a new form of currency that is issued directly in digital form by the central bank as legal tender. The current form of fiat currency is cash, reserve deposits, or balance settlements.CBDC differs from other digital currencies (including cryptocurrencies and other forms of central bank money) in two key ways:
1. CBDC is a two-tier structure. You can choose to decentralize or centralize. There are central banks, commercial banks, merchants, and users in the middle.Compared with ordinary Internet financial institutions, the overall privacy level is relatively high.
2. Contrary to the current digital currency, the operational structure of CBDC will be different from other forms of central bank currency.CBDCs are more powerful, they are programmable, can generate interest, can be cleared in near real time, have cheaper handling fees, and are more open.
When it comes to actually designing a CBDC, central banks have made mixed progress. Different central banks use their own unique methods. But in general, there are three issues being explored, whether the CBDC should be token-based or account-based, whether the CBDC should be in batches (only open to banks) or retail (open to the public), and whether it should be based on distributed Ledger?
When it comes to actually implementing a CBDC, things get complicated and there are many tricky issues to consider.
For example, once the CBDC is launched, will cash need to be eliminated?
Should CBDC bear interest? Should they have a face value like cash?
Or linked to the general price index? What impact will this have on commercial banks? How are anonymity and privacy issues handled? All these questions remain to be answered.
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Why issue a CBDC?
In an internal discussion paper in 2017, the Bank of Canada gave six reasons for issuing a CBDC in an article entitled "Central Bank Digital Currency: Motivation and Implications":
Ensuring that the central bank provides enough cash to the public, as well as maintaining the central bank's seigniorage revenue
Lower interest rate floor to support unconventional monetary policy
Reduce overall risk and improve financial stability
Improve the contestability of payments
Promoting Financial Inclusion
suppress criminal activity
Looking back at the BIS survey we analyzed earlier, payment security and domestic efficiency were selected as the most important motivations for central banks.
According to numerous papers published by central banks and other large financial institutions, for developed countries, the transition to a cashless society is the main driver, while for developing countries, financial inclusion, cost reduction, and operational efficiency are the main drivers. main motivation.
Looking at the rest of the reports and literature available, the intense competition brought about by Bitcoin and other innovations in the cryptocurrency industry, and the clear need to "get one step ahead", of course, are not listed as reasons for issuing a CBDC .
If central banks start rolling out CBDCs, and they end up being successful, the potential benefits are many.
From a technical point of view, CBDC is much better than the current form of legal currency. They can be better tracked, taxed more conveniently, monetary policy can be better transmitted, financial inclusion can be better, and the production of physical currency can be reduced. the cost of. The most obvious advantage is that payment is cheaper and faster, whether it is domestic payment or cross-border payment.
But in addition to the design and implementation challenges, a key issue with issuing CBDC is that CBDC may increase the risk of bank operations.However, this will only happen if the bank promises that the bank’s deposits will be redeemable for CBDC on demand, which is not necessarily the case according to the BoE document.
Currently well-known CBDC projects include: Uruguay’s E-peso (the project was successfully tested in 2018), China’s DCEP, Thailand’s “Project Inthanon,” Sweden’s E-krona (still in the research stage)…
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What is China's DCEP?
As a digital currency issued by my country's central bank, DCEP can be regarded as a type of CBDC, and its positioning is a substitute for banknotes.
By definition, DCEP is a digital payment tool with value characteristics."Value feature" means that value transfer can be realized without an account, just like we usually use cash without the existence of an account. So if someone asks you what DCEP is, you just tell him: DCEP is digital cash for payment.
Digitized cash for payments? Isn't that the same as Alipay and WeChat Pay?? In fact, there are still significant differences between them:
1. DCEP is a substitute for cash and a legal currency, so it has unlimited legal compensation, and no one can refuse to accept it.Although WeChat and Alipay are widely used today, they are not used everywhere for payment.
2. DCEP is directly settled in the central bank's currency, which is included in the central bank's debt system and protected; when using WeChat and Alipay to pay, it is settled with commercial bank deposits.If one day WeChat goes bankrupt (although it is unlikely), the money you put in WeChat can only participate in bankruptcy liquidation, and there is a risk of suffering heavy losses.
3. DCEP can realize "dual offline payment". Using DCEP for payment does not require a network, as long as there is electricity.As for WeChat and Alipay, not to mention that in extreme circumstances such as earthquakes and typhoons, even if the signal is not good, there is no way to pay normally.
4. DCEP does not require an account for payment, so it can meet the public's demand for anonymous payment under the premise of legality and supervision.first level title
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How is DCEP currently developing?
The research on digital currency started in 2014, and the Central Bank Digital Currency Research Institute was established in 2016. In 2017, the central bank announced that it would promote the development of blockchain in the five-year plan. In August 2019, Mu Changchun publicly stated that DCEP was ready to come out. In September, DCEP began "Closed-loop testing", top-level design, standard formulation, function research and development, joint debugging and testing were basically completed in December.
The central bank released the article "Inventory of the central bank's 2019 financial technology", which stated that the central bank has basically completed the top-level design of the legal digital currency, standard formulation, function research and development, joint debugging and testing, etc. Work.
Entering 2020, news of DCEP's internal testing in Shenzhen, Suzhou and other places came out...Since the start of the research, DCEP has been developed for 8 years. The process is not high-profile, but it is step by step.Although new news comes out every once in a while, bringing a wave of enthusiasm, DCEP is still hidden in the fog for most people, and it is very mysterious.
As mentioned earlier, DCEP is a substitute for cash. To be more precise, DCEP has achieved a balance between convenience and legitimacy while inheriting the attributes and value of cash.
In terms of convenience, DCEP reduces the cost of cash in printing, circulation, storage and carrying, has the advantages of electronic payment, and can also achieve payment anonymity to a certain extent.
In terms of legality, DCEP, like cash, has to face counterfeit banknotes (such as privately issued), money laundering, tax evasion, terrorist financing and other issues. At the same time, due to the anonymous payment characteristics of DCEP, the challenge of avoiding these risks will continue bigger.
In response to these problems, on the one hand, the government will use big data technology to strengthen the supervision and identification of anonymous payments, and at the same time set up some system frictions to increase the difficulty and cost of illegal crimes; on the other hand, the two-tier system of DCEP itself is more conducive to implementation Efficient and precise supervision, truly anonymous and controllable.
With the accelerated landing of DCEP, the issue that everyone is most concerned about should be how to invest, obtain and use DCEP.Judging from the information known from the current test, the whole process is actually not much different from cash, except that it has been changed from physical paper money to digital currency.
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summary
From cautious wait-and-see to quick entry, some countries have indeed deliberately "sneaked" on the popularity of CBDC. Although the central bank's DCEP is an internal test that started in 2020, it is the result of eight years of steady progress.The country has publicly stated that it aims to be the first to issue a digital currency to reduce reliance on the global dollar payment system.
From a global perspective, Venezuela officially launched the petro currency as early as 2018, but due to various reasons, it failed to achieve the expected results; while in the United States not far away, Libra is trying its best to get out of the regulatory quagmire. On the other hand, the digital dollar can only be regarded as a meeting in Congress.
It can be said that our digital currency has achieved relatively leading results. From this point of view, 8 years of polishing is not short for DCEP, but it is very necessary. Because of this, on the track of CBDC, our country may become a model worth learning from. Of course, DCEP still has a long way to go before that.
