The central bank's digital currency is related to everyone's life, and these homeworks must be done well

Text | Neicanjun

All articles on the Lian Neican public account are originally published by the author. In order to facilitate reprinting, the original logo is no longer marked. Reprinters are requested to indicate the source consciously. Hereby declare.

The central bank digital currency, which has attracted much attention from the market, is getting closer day by day.

On August 28, it was reported that the "digital currency" of the Construction Bank App has been launched and can be applied for. The App has indeed added two sub-menus: "Digital Wallet Recharge" and "Digital Currency", but these two functions are not open to the public and are only available in some pilot areas.

In fact, as early as May this year, screenshots of what appeared to be CCB's internal testing of the DC/EP digital wallet were circulated in the market. At the same time, screenshots of the DC/EP internal testing of what appeared to be the Agricultural Bank of China and the Bank of China were also exposed.

On August 3, the central bank pointed out in a video conference on the work in the second half of 2020 that the "closed pilot of legal digital currency was successfully launched" in the first half of the year, and the "development of legal digital currency will be actively and steadily promoted" in the second half of the year. The central bank's digital currency seems to be closer to our lives.

For ordinary people, the central bank's digital currency is a more convenient, easier, and safer way to pay and receive money, and transactions can be completed without the Internet. It will not bring any other impact on ordinary people.

In fact, the launch of the central bank's digital currency will bring many changes to people's lives, especially in some areas closest to the people. Therefore, we should understand and learn early, and welcome the arrival of the era of change early.

Will WeChat and Alipay exit the market?

People have just adapted to the life of mobile payment, and the central bank's digital currency has come. So the question is, will WeChat and Alipay withdraw from the market?

Many people think that there is not much difference between the central bank's digital currency and mobile payment. In fact, it is not. It should be said that the difference between them is very large. The most essential difference between the central bank's digital currency is that DC/EP is a combination of legal currency + electronic currency + payment platform. DC=digital currency, which means digital currency; EP=electronic payment, which represents electronic payment. The central bank's digital currency belongs to cash in circulation, not bank deposits. Third-party Internet payments such as Alipay and WeChat Pay use commercial bank deposit currency settlement, which belongs to the digitalization of M1 and M2 levels, and does not have the legal effect of M0 level, let alone replace M0.

In the case of poor network signals, the payment functions of online banking and payment platforms are often paralyzed, and DC/EP's dual offline technology can ensure that in extreme cases, the central bank's digital currency can be used like paper money. For example, in the absence of a network, as long as two mobile phones equipped with DC/EP digital wallets touch each other, a transaction can be realized.

Some experts pointed out that although DC/EP will not replace bank time deposits, it is possible to replace demand deposits, because the interest rate return on demand deposits is very low, which means that disintermediation (Note: disintermediation generally refers to skipping all middlemen when conducting transactions and conducting transactions directly between supply and demand parties.) is difficult to avoid completely. In addition, the potential impact on mobile payments deserves even closer attention, especially considering that mobile payments are actually digital finance, including big data risk control and the corresponding "infrastructure" of the big technology platform ecosystem. If DC/EP has a certain impact on the development of mobile payments, it is possible to change the speed and even direction of digital financial development.

After the implementation of digital currency, Alipay and WeChat, two third-party transaction tools that rely on bank accounts, will certainly be greatly impacted. However, it is not certain that they will completely withdraw from the market. There are two main factors: first, digital currency has not been implemented in areas outside the mainland, and Alipay and WeChat Pay still have a market area for survival; second, digital currency should only be a pure transaction service, and normally it will not provide various financial products like banks, Alipay, and WeChat. Therefore, those who have financial investment needs will still choose to transfer money to bank accounts, Alipay, and WeChat for financial investment.

Digital currency is a means of payment for ordinary people like us, but it is convenient and safe for currency swaps between countries. For business transactions between companies, the supervision of funds is more effective and timely, which can effectively reduce the flow and transfer of illegal funds. In general, the comprehensive use of digital currency is an inevitable trend and a new application scenario for legal currency in the mobile Internet era.

Will paper money disappear?

Looking back at the history of currency development, currency has evolved from natural material currency to regulated metal currency, then to paper currency under the metal standard, and then to pure national credit currency. The main reason for its continuous development and evolution in form is to continuously improve transaction efficiency and reduce operating costs.

Cash transactions may involve problems such as money laundering and terrorist financing. Digital currency helps to trace transaction trends and capital flows, which is conducive to preventing these illegal transactions.

However, it is impossible for the central bank's digital currency to completely replace cash. In addition to technical limitations, my country is vast, with different levels of regional development and different user habits. Cash and non-cash payment methods will coexist for a long time.

Are bank branches going to be cancelled?

Some people are worried about whether bank branches will be closed after the central bank issues digital currency.

In fact, the functions of commercial banks are not as simple as issuing and recovering currency. They have five basic functions: 1. Economic regulation function; 2. Credit intermediary function; 3. Payment intermediary function; 4. Credit creation function; 5. Financial service function.

Therefore, as long as everyone truly understands the full functions of commercial banks, they will believe that issuing digital currency will not cancel the physical branches of banks.

The issuance of digital currency will not reduce the number of bank branches, because the basic functions of banks are far more than just payment intermediaries. They also include macroeconomic regulation, deposit and loan business, financial services, intermediary business, etc. What's more, many people still insist on using cash payments and transfers.

With the development of Internet technology, the quality of citizens has been continuously improved, offline businesses have been fully moved online, and people generally accept the use of mobile banking apps to handle business. This is the day when banks will cancel some physical outlets.

Will it devalue money?

Digital currency replaces the currency in circulation on an equal basis and will not cause the money to depreciate. The digital currency issued by the central bank starts with digital currency replacing the paper money and coins in circulation. Assuming that the currency in circulation is 100 yuan, the central bank's digital currency will replace this 100 yuan on an equal basis. In order to ensure that the central bank's digital currency is not over-issued, commercial institutions pay full and 100% reserve to the central bank. In other words, when issuing, the People's Bank of China will first exchange the digital currency to banks or other operating institutions, and then these institutions will exchange it to the public. In addition, considering that the digital currency is limited to pilot projects in the early stage, it will not be issued in large quantities and fully promoted in the short term, and the currency circulation speed will also remain at a normal level.

Currently, digital currency is still being tested on a small scale in designated cities, but according to expert analysis, in the next two to three years, 30% to 50% of the cash in circulation on the market may be digitized.

On the contrary, issuing digital currency can prevent inflation. Through the issuance of digital currency, the country can not only understand the total value of currency issuance, but also accurately locate the whereabouts of the money. It eliminates the problem that paper money does not know where it flows after it leaves the bank, and it is unknown how much money has been issued. The previous inflation was caused by not knowing how much paper money was printed, and it was too late when the result occurred. This can better protect the quality of life of the people.

Issuing digital currency can make monetary regulation more precise. After the implementation of digital currency, it will be clear at a glance how much money has entered the circulation field, which is conducive to the regulation of monetary policy. As long as the total amount of money is well controlled, inflation will not occur. In the past, inflation was caused by not knowing how much money was printed, and it was too late to react.

It's safer to spend money

If it is paper money and coins, they may be lost or stolen, damaged, contaminated, or moldy in daily life. Theft is particularly abominable. However, if paper money and coins are converted into digital currency, because its string of characters is usually stored in the digital wallet of the mobile phone, it is impossible for them to be damaged, contaminated, or moldy.

Even if it is stolen, there is a protection password. Even if the password is cracked and used by criminals, it can be easily recovered because each digital currency has a specific code registered with the bank or other commercial institutions responsible for exchanging digital currency, and it is easy to trace. In this comparison, the security of digital currency is much higher than Alipay and WeChat, although everyone is satisfied now.

At the same time, the central bank's digital currency can prevent the production of counterfeit currency. Digital currency is most likely to make counterfeit currency makers and dealers lose opportunities.

Spending money has become more convenient.

In the era of paper money, we often face such embarrassment. It is very troublesome to withdraw money in unfamiliar or remote places. Even if there is a bank, the cross-bank withdrawal procedure is not low.

In the era of mobile payment, there have been great changes in this regard. But without the grid, everything is useless.

Digital currency can support offline payment, which is a powerful feature that can effectively solve the problem of network disconnection in remote areas. According to the Digital Currency Research Institute of the Central Bank, even without a network, as long as two mobile phones are installed with the DCEP "digital wallet", they can use the same transfer or payment function as paper money by "touching" the two mobile phones, because the central bank's digital currency uses dual offline technology.

Therefore, no matter in the mountains, seas, or deserts, digital currency transactions can be carried out unimpeded, which is truly amazing.

In addition, the circulation of large amounts of funds will no longer be restricted. For example, the current situation of needing to make an appointment in advance to withdraw large amounts of money from a bank will no longer occur.

Conducive to the control of clean government

The issuance and flow of digital currency are traceable. Think about it, we have seen countless corrupt officials hiding hundreds of millions of cash at home. If it is digital currency, can the corrupt officials still hide their funds, transfer their assets, and embezzle without leaving any traces?

In addition, those who hide their assets and refuse to pay will have nowhere to hide. The traceability of the operation path of digital currency makes it impossible for those who hide their assets and refuse to pay their debts to cheat. Because as long as there is a court judgment, your property can be easily found and directly executed.

It has a huge impact on corporate or individual taxation: all income can be checked, so tax evasion is unlikely and the only way to avoid taxes is to do so reasonably.

Digital currency will be integrated with human credit, and deadbeats will be invisible. When all cash flows are under the control of the central bank, there will be no restrictions on the flow of large amounts of funds.

Text | Neicanjun

Disclaimer: This information should not be used as a basis for making investment decisions, nor should it be interpreted as advice for engaging in investment transactions. Trading digital assets involves significant risks and may result in the loss of your investment capital. Therefore, you should ensure that you fully understand the risks involved and invest prudently. "Chain Insider" is only responsible for sharing information and does not constitute any investment advice. All user investment behaviors have nothing to do with this site.