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Deputy governor of the central bank: Some Considerations on the digital currency of the central bank

release time:2018-01-29 publisher:BBX

The deputy governor of the central bank: some digital currency consider on the Central Bank Deputy Governor of the people's Bank China Fan Yifei: in recent years, all major countries and regions of central banks and monetary authorities are on the issue of central bank digital currency research, Singapore and Sweden's central bank has started the relevant test, the people's Bank also actively explore and research in the organization. This paper puts forward some thoughts about the arrangement of the digital currency of the Central Bank of China.

The digital currency of the Central Bank of China should adopt a double delivery system

It is a complex system project to issue the digital currency of the central bank. Our country has a vast territory and large population. There are great differences in economic development, resource endowments and educational level among different regions. In the process of designing and distributing the central bank's digital currency, we should give full consideration to the diversity and complexity of system and system design. For example, the use of remote areas with inadequate network coverage needs to be considered. If the single layer (one-tier) is used, it will face the great test of the above factors. In order to enhance the convenience and service availability of the central bank's digital currency and enhance the public's willingness to use, double layer (two-tier) delivery can be considered to deal with the above difficulties.

"Double delivery" is conducive to making full use of the advantages of existing resources, talents, technology and other advantages of commercial institutions, through market drive, promotion of innovation, and competition selection. The IT infrastructure application and service system of commercial banks and other institutions has been relatively mature, the system has strong processing capacity, and has accumulated some experience in the field of financial and technological applications. Therefore, in addition to the Commercial Bank of the existing infrastructure, human resources and mature application and service system, start to repeat construction, is a huge waste of social resources. Under the premise of safety and reliability, the central bank and commercial banks and other institutions can cooperate closely, do not presuppose the technical line, fully mobilize the market power, and achieve system optimization through competition, jointly develop and operate together. This is not only conducive to the integration of resources, to play a joint force, but also conducive to the promotion of innovation. Moreover, the public has been accustomed to dealing with financial businesses through commercial banks such as banks. Double entry also helps to enhance public acceptance of the central bank's digital currency.
"Double delivery" helps to dissolve the risk. In the past, the central bank has accumulated rich experience in the development of interbank payment and liquidation system, but the interbank settlement payment system is directly serving financial institutions, and the central bank's digital currency is directly serving the public, involving thousands of households. If only relying on the strength of the central bank itself, supporting such a huge system will not only meet the goals of safety, efficiency and stability, but also satisfy user experience needs. At the same time, the central bank is also subject to the objective constraints of budget, resources, personnel and technology. Through the design of the two level, the central bank can avoid excessive concentration of risk.

"Double release" can avoid "financial disintermediation". Under the "single layer", the central bank directly puts the digital money on the public, and the central bank's digital currency and the commercial bank deposit currency will form a competitive relationship. Obviously, the credit rating of the central bank's digital currency, which is endorsed by the central bank, is higher than that of commercial banks. It will have crowding out effect on the deposits of commercial banks. There may be "deposit moving", which will further affect the loan delivery ability of commercial banks. In addition, commercial bank deposits will increase the ability to reduce its reliance on the interbank market, raise the price of money, increase the social cost of financing, damage to the real economy, caused by "financial disintermediation". In order to maintain its lending capacity and financial stability, the central bank will have to subsidize commercial banks. In extreme cases, will subvert the existing financial system, the central bank appears baodatianxia "universal" situation.

To sum up, the double entry mode of "central bank agency business organization" is not only suitable for China's national conditions, but also able to make full use of existing resources and mobilize the enthusiasm of commercial banks. First of all, it does not change the debt debt relationship of the currency in circulation. In order to ensure that the currency is not exceeded, the agency should pay the reserve to the central bank at the total amount of 100%. Therefore, the central bank's digital currency held by the public is still the debt of the central bank, which is guaranteed by the credit of the central bank and has unlimited compensation. Secondly, without changing the existing currency system and two yuan account structure, not for commercial banks to deposit money will not increase competition, commercial banks rely on the interbank market, will not affect the lending capacity of commercial banks, it will not cause the "financial disintermediation" phenomenon. Thirdly, because it does not affect the existing monetary policy transmission mechanism, it will not enhance the pro cyclical effect under pressure environment, so it will not have a negative impact on the current mode of operation of the real economy. Finally, the model is more advantageous to play the advantages of the central bank's digital currency, save the cost, improve the speed of currency circulation, and improve the convenience and security of the payment. In addition, due to the credit advantage of the central bank's endorsement, it is beneficial to suppress the public demand for private encrypted digital money and consolidate my currency sovereignty.

Under the arrangement of double decker delivery system, China's central bank digital currency should be put in a loose coupling account and adhere to the centralization of the management model.

In order to maintain the attributes of the central bank's digital currency and achieve the goal of monetary policy and macro Prudential Management, our central bank's digital money double entry system should be different from the centralization of various token issuing models. First, because the central bank's digital money is still a liability of the central bank to the public, its debt and debt relationship has not changed with the monetary form, so the central position of the central bank in the process of delivery must be guaranteed. Second, we need to ensure and strengthen the macro Prudential and monetary policy functions of the central bank. Third, do not change the two yuan account system, and maintain the original monetary policy transmission mode. Fourth, in order to avoid the excessive issuance of money by the agency, it is necessary to have the appropriate arrangements for the central bank to track and supervise the delivery of digital money.

Therefore, central bank digital currency should adhere to the mode of centralization.  However, the central delivery model is also different from the traditional electronic payment tools. The transfer of funds for electronic payment tools must be completed through an account and a tight coupling of accounts. The central bank's digital currency should be based on the loosely coupled form of the account, making the transaction link much less dependent on the account. In this way, it can be easily circulated as well as cash, and can be controlled anonymously.
The central bank's digital monetary holders can directly apply them to various scenes, which are beneficial to the circulation and internationalization of the RMB. In addition, if there is no transaction, the third party anonymity will reveal personal information and privacy, but if we allow a complete third party anonymity, it will encourage crime, such as tax evasion, terrorist financing and money laundering. So in order to achieve a balance, it must be controllable anonymity, only the third parties to the central bank to disclose transaction data. Under the loosely coupled account system, the agency can ask the agency to transmit the transaction data to the central bank asynchronously everyday, which is convenient for the central bank to grasp the necessary data to ensure that prudent management and anti money laundering supervision goals can be achieved, and also can reduce the system burden of business organizations. It

At the present stage, China's central bank digital currency design should pay attention to the substitution of M0 instead of M1 and M2
At this stage, M1 and M2, based on commercial bank accounts, have been realized electronically or digitally, without the need for digital currency to be digitalized again. The payment clearing system supports M1 and M2 transfer between banks (such as a large micro payment system and online payment interbank clearing system), system of commercial banks and non bank payment operation of various types of Network Payment institutions such as normal, and constantly improve and upgrade more efficient and can meet the needs of China's economic development. The use of central bank digital currency instead of M1 and M2 will not only help to improve the efficiency of payment, but also cause a huge waste of existing systems and resources.

In contrast, the existing banknotes and coins issued and printed, return and storage link cost is high, the circulation system level, and bring inconvenience, easy to be forged, anonymity is not controllable, there is risk of being used for money laundering and other illegal and criminal activities, to realize the necessity of digitalization and increasing. In addition, non cash payment instruments, such as traditional bank card and Internet payment, accounts are based on the tight coupling mode, can not fully meet the public demand for anonymous payment services and easy to use, can not completely replace the M0, especially the poor coverage of the area in the account service and communication network, people rely on cash still very high. The central bank's digital currency keeps the property and the main features of the banknote, and meets the needs of portable and anonymity, and will be the best tool to replace the cash.
Because the central bank is a digital currency alternative to M0, it should not pay interest. This does not lead to financial disintermediation, nor does it cause inflation expectations. Accordingly, it will not have a great impact on the current monetary system, the financial system and the real economy.

In the same way, as the central bank's digital currency is an alternative to M0, it should also comply with all the current regulations on the management of banknote and anti money laundering and counter-terrorism financing. In order to cooperate with anti money laundering and other related work, relevant agencies may be asked to report to the Central Bank of the Central Bank of the large and suspicious transactions of the central bank's digital currency. At the same time, in order to guide the central bank's application of digital money to small retail business scenarios, not to produce crowding out effect on deposits, and avoid the pro cyclical effect under arbitrage and pressure environment, we can set daily and annual cumulative transaction limit, and stipulate large scale appointment exchange. If necessary, we can also consider the convertibility of the central bank's digital currency, and we can not charge for small or low frequency convertibility, and charge higher fees for large, high-frequency exchanges and transactions, so as to increase exchange costs and institutional frictions. In the case of the zero interest rate, this arrangement can also create conditions for the central bank to carry out the negative interest rate policy.

An intelligent contract to load the central bank's digital currency should be kept prudent

According to the definition given by Nick Szabo (Nick Szabo), intelligent contract is a set of commitments defined in the form of digital, including the agreement that a contractual participant can perform on these commitments. The intelligent contract is written into the computer readable code. Once the trigger condition is reached, it is automatically executed by the computer. It can load the precondition of time, credit and so on. It can also be used in various scenes such as tax payment, counter-terrorism financing and so on.

However, as mentioned before, the central bank's digital currency is an alternative to M0, which has unlimited legal compensation, that is, it bears the functions of value scale, circulation means, payment means and value store. The original banknote did not carry any other social and administrative functions. The regulations on the management of RMB in People's Republic of China stipulates that the intentional damage of the RMB is prohibited. Therefore, adding extra social or administrative functions to the banknote actually has the suspicion of destroying the renminbi.

In order to maintain the legal status of unlimited law, the digital currency of the central bank should not bear other social and administrative functions except the four functions of the currency. The smart contracts loaded with the functions except the legal tender will affect their legal compensation function, or even turn them into valuable coupons, reduce the free usage of the central bank's digital currency, and will also have an adverse effect on the internationalization of RMB. It will also reduce the speed of currency circulation, affect the transmission of monetary policy and the central bank to perform macro Prudential functions. At the same time, it may also infringe on the right to privacy of citizens, which is not conducive to the protection of personal rights and interests.