The central bank report once again sends a cautious signal: there is no official launch schedule for the digital RMB system

By: Essence

Original title: "Digital RMB Steady Steering and Striving Forward"

The world is undergoing a major change that has not been seen in a century, and the digital economy has become a new engine leading the high-quality development of the future economy. Among them, the central bank's digital currency (DC/EP), as a new form of the RMB's development into the digital economy era, has attracted much attention and is eagerly awaited.

On November 6, the People's Bank of China released the "China Financial Stability Report (2020)". This report of more than 80,000 words contains a huge amount of information, among which there is no official timetable for the launch of the digital RMB system.

This is another signal of caution following the full disclosure of the "Proposal of the Central Committee of the Communist Party of China on Formulating the 14th Five-Year Plan for National Economic and Social Development and the Long-Term Goals for 2035" (hereinafter referred to as the "14th Five-Year Plan Proposal") on November 3, which mentioned that it will "steadily advance the research and development of digital currency."

In fact, China has become the "leader" of global digital currency. Against the backdrop of many countries around the world accelerating the research and development and application of central bank digital currency, this steady and vigorous effort, as Federal Reserve Chairman Powell said, "is more important to do it than to be first."

Steadily advancing R&D work

As news about the digital RMB continues to flow out, expectations from the outside world are becoming stronger.

There are many interpretations of the significance and key contents of the 14th Five-Year Plan. Among them, it is mentioned that a modern central bank system will be built, the monetary supply regulation mechanism will be improved, the research and development of digital currency will be steadily promoted, the market-oriented interest rate formation and transmission mechanism will be improved, and the research and development of digital RMB will be "steadily promoted."

On November 6, the People's Bank of China released the "China Financial Stability Report (2020)" and stated that there is no official timetable for the launch of the digital RMB system. At the same time, the People's Bank of China will continue to steadily and orderly advance the research and development of the digital RMB system, do a good job in pilot testing, strengthen relevant policies and impact research, and continuously optimize and improve research and development design.

The People's Bank of China released the China Financial Stability Report (2020)

Careful people have discovered that the key word mentioned above is "steady progress". Analysts believe that this shows that the technical development depth and application scenario breadth of the central bank's digital currency are still in the initial stage and need to be continuously improved and developed.

In addition, the report also pointed out that international organizations and central banks of some economies have conducted forward-looking research on the impact that CBDC may have on the financial system. Overall, the potential impact of CBDC varies greatly depending on its type, operating mode and interest calculation mechanism. Retail CBDCs that adopt a single-tier operating model or pay interest have a greater impact on monetary policy transmission and financial disintermediation, while wholesale CBDCs and retail CBDCs that adopt a two-tier operating model and do not pay interest have less impact on the financial system.

The report believes that there are four specific points: First, interest-bearing CBDC may affect the monetary policy transmission mechanism, while non-interest-bearing CBDC will have less impact; second, interest-bearing CBDC may have an impact on banks' financial intermediary functions, while non-interest-bearing CBDC will have less impact; third, CBDC can help improve payment efficiency, reduce payment costs, and promote inclusive finance; fourth, CBDC can help enhance anti-money laundering, anti-terrorist financing, and anti-tax evasion capabilities.

Wang Yongli, former vice president of the Bank of China, wrote an article pointing out the major changes in the digital RMB’s payment operation system and mechanism, namely, the central bank has become the core entry point and clearing center for the operation of the digital RMB, realizing “currency is payment, payment is settlement.”

An industry analyst also believes that the digital RMB will help promote the digital transformation of commercial banks. Next, commercial banks should take the initiative to seize opportunities, select application scenarios based on their own advantages, and promote their own digital transformation and development.

Li Lianxuan, chief researcher of OKLink Research Institute, once said that in order to better apply the central bank's legal digital currency in trade settlement or supply chain financing, three major bottlenecks need to be overcome: First, on the technical level, the existing blockchain technology still cannot meet the DCEP's demand for high business concurrency; second, effectively solve moral risks in small retail scenarios, such as the double-spending problem, which is a major moral risk that the industry is currently concerned about; third, the central bank's legal digital currency cannot provide interest income, so whether the core enterprises in the industrial chain with relatively ample funds are willing to use legal digital currency for trade settlement is still a question.

The article "Global Race for Digital Currency: "Do it Fast" or "Do it Right"" published by Beijing Business Daily points out that in the unprecedented changes, under the looming inflation risk, and in the face of the ever-growing debt snowball, everyone is looking for the next possibility of currency. Therefore, haste makes waste.

Exploring Diversified Applications

Since the beginning of this year, various tests and preparations for the digital RMB have been progressing in an orderly manner.

In April, Xiongan New Area held a legal digital RMB pilot promotion meeting, with 19 units including McDonald's, Starbucks, Cainiao Station, and JD unmanned supermarket participating; in May, employees of district-level agencies, enterprises and institutions in Xiangcheng District, Suzhou City received 50% transportation subsidies in the form of digital RMB issued by the central bank; in October, Shenzhen issued red envelopes totaling up to 10 million yuan to 50,000 winners, further expanding the application scenarios of digital RMB testing. Not only that, Chengdu is also conducting a digital RMB pilot, and the number of digital currency users in the pilot area has exceeded 50,000.

On August 14, the Ministry of Commerce issued the "Notice on Issuing the Overall Plan for Comprehensively Deepening the Pilot Program for Innovative Development of Trade in Services" (hereinafter referred to as the "Notice"). The notice requires that the digital RMB pilot program be carried out in Beijing-Tianjin-Hebei, the Yangtze River Delta, the Guangdong-Hong Kong-Macao Greater Bay Area, and qualified pilot areas in the central and western regions. In addition, internal closed pilot tests will be conducted in the Winter Olympics scenario in the future.

The Ministry of Commerce issued the "Notice on Issuing the Overall Plan for Comprehensively Deepening the Pilot Program for Innovative Development of Trade in Services"

From the perspective of application scenarios, the pilot is mainly concentrated in retail payment scenarios, covering multiple fields such as transportation, living expenses, catering services, shopping, government services, etc., meeting consumers' needs for convenient and efficient payment.

On October 25, Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, said at the 2020 Bund Financial Summit that it is necessary to coordinate the management of digital RMB information. Coordinate the management of digital RMB wallets, unify the digital RMB cognitive system, effectively reduce anti-counterfeiting costs, and follow the principle of two-tier operation, adopt a co-construction and sharing approach by the central bank and designated operating institutions to jointly develop a wallet ecological platform. At the same time, each visual recognition and special functions must be realized.

He believes that during the issuance of the digital RMB, on the one hand, all commercial banks should participate in circulation services; on the other hand, it is also necessary to ensure that all people, including those in poor areas and digitally disadvantaged groups, are provided with inclusive and easy-to-use digital central bank currency to avoid the digital divide and financial exclusion.

On November 2, Yi Gang, governor of the People's Bank of China, said that the digital RMB can currently be used in four pilot projects through "QR code" or "tap and go". The trial phase operated smoothly, with more than 4 million transactions corresponding to more than 2 billion yuan. At the same time, Yi Gang pointed out that China's digital currency is still in its infancy and needs a more complete legal framework and regulatory requirements that focus on transparency. In the future, discussions will be held with international central banks and regulatory authorities on the framework and currency stability.

"At present, my country's digital RMB has completed top-level design, function development, standard setting, joint debugging and testing, and has been at the forefront of digital fraud by central banks around the world." The above analysts believe that in the process of closed testing and pilot projects in some regions, the digital RMB will also undergo a series of optimization and improvement.

Tightening the regulatory string

The 14th Five-Year Plan proposes to build a modern central bank system, improve the monetary supply regulation mechanism, steadily promote the development of digital currency, and improve the market-oriented interest rate formation and transmission mechanism. At the same time, improve the financial risk prevention, early warning, disposal, and accountability system, and have zero tolerance for illegal and irregular behavior.

On November 3, CCTV Financial Commentary stated that under the current circumstances, the pace of domestic technological and financial innovation cannot be stopped, and the exploration and experimentation of digital currency are also being actively carried out. The construction of a matching regulatory system must be accelerated, and a complex and complete legal and regulatory framework needs to be formulated to make the red lines and bottom lines of risk prevention more solid.

Prior to this, on October 23, the People's Bank of China publicly solicited opinions on the "People's Bank of China Law of the People's Republic of China (Draft for Comments)". Among them, it is proposed that the RMB includes physical and digital forms, providing a legal basis for the issuance of digital currency; in order to prevent the risks of virtual currency, it is also clearly stated that any unit or individual is prohibited from producing and selling digital tokens.

The People's Bank of China Solicits Public Opinions on the "People's Bank of China Law of the People's Republic of China (Draft for Soliciting Opinions)"

On October 21, the People's Bank of China officially released three financial industry standards, including "Financial Technology Innovation Application Testing Specifications", "Financial Technology Innovation Security General Specifications", and "Financial Technology Innovation Risk Monitoring Specifications".

Among them, the "Fintech Innovation Risk Monitoring Specification" clarifies the monitoring framework, objects, processes and mechanisms for financial technology innovation risks, and requires the use of institutional reporting, interface collection, automatic detection, information sharing and other methods to analyze the operation status of innovative applications in real time, realize dynamic detection and comprehensive evaluation of potential risks, and ensure that the overall risks of financial technology innovation applications are controllable. The "Monitoring Specification" also mentions the safety of technology use, requiring the monitoring of technologies such as artificial intelligence, big data, cloud computing, blockchain, and the Internet of Things.

On November 6, the People's Bank of China stated in the "China Financial Stability Report (2020)" that financial management departments will coordinate and cooperate, strengthen the top-level design and overall layout of supervision, and accelerate the improvement of the financial technology supervision framework in line with my country's national conditions: First, based on innovative regulatory tools, and on the basis of summarizing the experience of financial technology innovation supervision pilot projects, improve the risk monitoring system, publish a white paper in a timely manner, and introduce financial technology innovation supervision tools that are in line with my country's national conditions and in line with international standards as soon as possible; second, with regulatory rules as the core, timely introduce targeted regulatory rules to ensure that financial technology businesses have rules to follow in terms of business compliance, technical security, risk prevention and control, and solve problems such as regulatory gaps and regulatory arbitrage caused by lagging rules; third, using digitalization as a means to build a digital regulatory reporting platform, use artificial intelligence technology to formalize, digitize and proceduralize regulatory rules, accelerate the construction of digital regulatory capabilities, and enhance regulatory penetration and professionalism.

"Fake digital RMB wallets have been found on the market." Mu Changchun said recently that in the era of digital RMB, there are still problems of anti-counterfeiting and anti-counterfeiting.

He also said that the digital RMB should adhere to the centralized supervision of the People's Bank of China: first, it is necessary to coordinate the management of the digital RMB issuance quota, ensure 100% preparation, and prevent over-issuance; second, it is necessary to formulate unified business standards, technical specifications, security standards and application standards to avoid payment barriers; third, it is necessary to coordinate the management of digital RMB information; fourth, it is necessary to coordinate the construction of the digital RMB issuance infrastructure, realize interconnection across operating institutions, and ensure that there are no payment barriers.