Securities Daily: Senior officials of the central bank "define" Bitcoin. The "roots" of digital currency and digital assets are in serving entities

On the evening of April 18, the first live broadcast of the 2021 Boao Forum for Asia Annual Conference attracted great attention from all walks of life. Zhou Xiaochuan, Vice Chairman of the Boao Forum for Asia and former Governor of the People's Bank of China, and Li Bo, Deputy Governor of the Central Bank, shared their views on the current pilot of the digital RMB, the internationalization process, and the attitude towards encrypted assets at the sub-forum themed "Digital Payment and Digital Currency". It is worth noting that at this forum, Li Bo, Deputy Governor of the Central Bank, made a clear definition of Bitcoin for the first time.

How will the digital RMB develop? How should Bitcoin and stablecoins be regulated? The Securities Daily reporter interviewed several experts in the industry.

Crypto assets illegal currency

Mainly used as an investment tool

At the Boao Forum for Asia 2021 Annual Conference, Li Bo, deputy governor of the central bank, clearly defined Bitcoin for the first time. He said: "Globally, Bitcoin or stablecoins, as crypto assets, have begun to become an alternative investment option, but they are not currencies themselves." He believes that the main role that crypto assets may play in the future is as an investment tool or alternative investment.

Zhou Xiaochuan said that it is necessary to distinguish between digital currency and digital assets. It is not time to draw conclusions about digital assets such as Bitcoin, but "we need to be reminded and be careful. In China, any financial innovation must clearly state its benefits to the real economy."

On April 18, the global cryptocurrency market plummeted across the board, with mainstream currencies such as Bitcoin and Ethereum falling by more than 10%. Among them, Bitcoin once fell below the $54,000 mark, with the largest drop of more than $8,000 in 24 hours. Bitcoin's trend also attracted other mainstream currencies to follow suit and fall, with a general drop of more than 10%.

In fact, as early as September 2017, the central bank and seven other ministries and commissions issued the "Notice on Preventing Risks in Token Issuance and Financing" to define "virtual currency". The notice pointed out that the tokens or "virtual currencies" used in token issuance and financing are not issued by monetary authorities, do not have monetary attributes such as legal compensation and compulsion, do not have the same legal status as currency, and cannot and should not be circulated and used as currency in the market.

"We must ensure that crypto assets do not cause serious financial risks." Li Bo said that China is studying regulatory policies for these assets. In the future, if any stablecoin hopes to become a widely used payment tool, it must be subject to the same strict supervision as financial institutions such as banks or quasi-banks.

Zheng Dingxiang, president of the Shenzhen Information Service Industry Blockchain Association, told the Securities Daily reporter: "The blockchain technology underlying crypto assets has a wide range of applications in asset registration, securities settlement, transaction reporting and inclusive finance, but crypto assets also have potential financial stability risks. Crypto assets can be traded anonymously, which will facilitate money laundering and tax evasion; crypto assets have no national boundaries, and there is a conflict between the global asset flow and the supervision of a single sovereign state, which brings difficulties to the supervision of crypto assets."

Dr. Zheng Lei, Chief Economist of Baoxing Financial, said in an interview with the Securities Daily reporter: "Governments of different countries have different attitudes towards Bitcoin, but they all clearly recognize that it is very difficult to regulate such encrypted digital assets, and that they may be closely related to illegal activities such as money laundering during transactions. The potential risks of encrypted assets mainly lie in the opacity and large volatility of the transaction process. For encrypted assets, necessary risk control should be carried out at the exchange level, such as investigating the identity of investors and the source of funds, using monitoring technology for speculative transactions, and cooperating with law enforcement agencies to lock transactions and illegal accounts when necessary. The trading platform itself should also be subject to daily supervision in accordance with similar financial institutions."

Ding Feipeng, director of the criminal department of Beijing Shangguang Law Firm, told the Securities Daily reporter that the legal positioning of encrypted assets represented by Bitcoin and Ethereum is "virtual commodities." Since they are commodities, their possession, use, income, and disposal should also be equally protected by law.

Digital RMB

No timetable for official launch yet

Zhou Xiaochuan introduced the background of the launch of the digital RMB at the forum. He said that the Chinese central bank initially considered digital currency mainly from a retail perspective. China's retail market is huge, with 1.4 billion users, so the original intention of developing digital currency is to establish a more convenient, more effective and lower-cost payment system, rather than a wholesale system or the internationalization of the RMB.

"During the upcoming Beijing Winter Olympics, we will make the digital RMB available not only to domestic users but also to international guests," Li Bo said at the forum.

Li Bo said that there is no timetable for the official launch of the digital RMB. "Before the nationwide promotion, three aspects of work need to be done. First, we must continue to do a good job in pilot work and expand the scope of pilot projects. Second, we must further build the infrastructure of the digital RMB, including the ecosystem. At the same time, we must further improve the security and reliability of the system. Third, we must establish a corresponding legal and regulatory framework to supervise the use of the digital RMB."

Regarding the characteristics of the current digital RMB pilot, Liu Bin, director of the Financial Research Office of the China (Shanghai) Pilot Free Trade Zone Research Institute, told the Securities Daily reporter: "Currently, more and more cities are participating in the digital RMB pilot, and progress will be significantly accelerated. The pilot scenarios are becoming more and more diverse. The current pilot scenarios are gradually shifting from life consumption scenarios to enterprise applications and government application scenarios, and from single offline to offline and online. It is expected that in the future, it will be promoted in cross-border fields and industry supervision, combined with local key industries and major local festivals, and the cooperative institutions will become more and more rich, diverse and extensive."

Chen Xiaohui, head of the financial technology and international settlement innovation team of Yibin University and chief expert of Peiyi Consulting, told the reporter of Securities Daily that the pilot of digital RMB will be featured by blooming in multiple places, multi-user trials, multi-time operation, and multi-institutional cooperation. It is predicted that the scope of application of digital RMB will be expanded in an orderly manner in the future. In addition to banks as the main operators of digital RMB, non-bank payment institutions and even some other institutions with large online and offline traffic may participate.

Digital RMB and digital assets

Must be rooted in the real economy

Zhou Xiaochuan emphasized that both digital currency and digital assets must serve the real economy.

Su Xiaorui, a special researcher at Suxi Zhiyan, told the reporter of Securities Daily that the digital RMB can penetrate into rural areas and cover remote areas, and play a role in serving my country's "agriculture, rural areas and farmers" and inclusive finance in a broader scope, and serve the real economy. At the same time, the digital RMB can also ease the pressure on private enterprises to collect payments.

In addition to the retail economy and rural economy, Su Xiaorui said that digital RMB also has great potential in the supply chain field.

"The controllable anonymity and non-tamperability of the digital RMB will enhance the ecological integration of the upstream and downstream of the industrial chain, and thereby improve the credit capacity of small and medium-sized enterprises in the industrial chain," said Su Xiaorui.

Yu Jianing, rotating chairman of the Blockchain Committee of the China Communications Industry Association and president of Huobi University, agreed with the above statement. He further pointed out that crypto assets based on blockchain technology can not only be invested in as alternative assets, but can also become a booster for revitalizing the real economy to a certain extent.

Yu Jianing believes that crypto assets have both intrinsic economic value and trustworthy proof of rights and interests, and can allow assets to circulate efficiently in the digital world. Take copyright as an example. As an asset, copyright is prone to problems such as unclear rights and interests and low liquidity. However, after copyright is put on the chain to form a crypto asset, the ownership relationship and historical transaction information behind it will become clear and transparent. At the same time, these crypto assets can be circulated and traded at low cost on the chain, allowing assets with low liquidity to increase transaction speed. The rights and interests of assets are verified and transferred on the chain, which can reduce transaction costs and improve transaction security.

Chen Xiaohua, chairman of the Blockchain Professional Committee of the China Mobile Communications Association and chief digital economist, told the Securities Daily reporter: "Due to the characteristics of virtual currency, such as the intangibility and anonymity of transactions, the wide range of uses, the diversity of funding methods, the possibility of obtaining cash, the segmentation of services, the speed and irrevocability of transactions, and the complexity of transaction models, the risk of money laundering is relatively high."

"We have entered the era of digital economy, which means that for a long time in the future, many production, consumption and investment activities will be digitized, and digital currency will become the financial infrastructure of the digital economy era." Dr. Zheng Lei further told the Securities Daily reporter that digital assets are assets with investment value and capital attributes generated after the digitization of economic activities. They are bound to accompany the real economy and empower the real economy.