Securities Times: China's digital currency adopts the blockchain system to form a digital currency with unique Chinese characteristics

Source: Securities Times

China's digital currency has fully drawn on the third-party payment methods of e-commerce companies and completely broken away from the development ideas of traditional electronic currencies. It refers to the third-party payment systems of e-commerce companies and adopts the blockchain system for security verification.

Qiao Xinsheng

According to a survey report by the Bank for International Settlements in 2019, 80% of central banks have set up central bank digital currency projects, and 10% of central banks are ready to issue digital currencies within three years. The US Federal Reserve and the US Congress strongly oppose US e-commerce companies from promoting digital currencies, fearing that digital currencies will shake the hegemony of the US dollar. However, on August 13, 2020, a member of the US Federal Reserve Board revealed at a meeting held by the US Federal Reserve Board in San Francisco that the US Federal Reserve Board has begun testing a digital currency.

As early as 2014, the People's Bank of China established a digital currency research project. In 2016, the Digital Currency Research Institute of the People's Bank of China was established and began to develop China's digital currency.

China's digital currency is different from both electronic currency and the currency developed by the Federal Reserve. China's digital currency is a brand-new currency system based on sovereignty. China's digital currency fully draws on the third-party payment methods of e-commerce companies and completely breaks away from the development ideas of traditional electronic currency. It refers to the third-party payment system of e-commerce companies and adopts the blockchain system in terms of security verification, thus forming a digital currency with unique Chinese characteristics.

China's digital currency has the following characteristics: First, it is completely free from dependence on the existing Internet or "Internet". Even without the Internet, digital currency settlement can be carried out. This makes China's digital currency essentially different from electronic currency and existing third-party payment systems. In other words, as long as consumers carry mobile terminal devices with digital currency stored in them, they can directly achieve currency settlement through the connection between mobile terminal devices without the Internet. This can not only get rid of the Internet and avoid security loopholes in Internet information transmission that may threaten digital currency transactions, but also use widely used mobile terminal devices to settle funds at any time.

Second, the security of China's digital currency is based on the sovereign currency management system. China's digital currency does not establish a central information transmission system to which all transaction information is transmitted, but adopts a distributed security protection system, which is what people usually understand as a blockchain system. If digital currency transactions are not authenticated by other information, then digital currency transactions cannot be included in the system, will not be recognized, and transactions cannot be completed. Therefore, the widespread promotion of digital currency can combat fraud crimes to a certain extent and reduce the phenomenon of corrupt transactions to a certain extent.

Third, the issuance of digital currency can greatly save transaction costs and currency management costs. As we all know, in the field of currency issuance and circulation, there is a phenomenon of "the higher the virtue, the higher the evil". In order to ensure that the currency they issue will not be counterfeited, countries often add many technical elements, and the application of new materials and technologies objectively leads to a significant increase in the cost of currency printing. In order to solve this problem, issuing digital currency is undoubtedly the best choice.

On the surface, digital currency is just a set of numbers, but behind digital currency, there is strong technical support. Judging from the digital currency test of the People's Bank of China, China's digital currency is actually issued on the basis of the sum of sovereign credit and commercial credit. In layman's terms, China's digital currency is not issued directly by the People's Bank of China, but by the People's Bank of China to the country's commercial banks. After the commercial banks obtain the digital currency issued by the People's Bank of China, they rely on their own credit to issue digital currency to the outside world.

In other words, China's digital currency has dual credit attributes. On the one hand, the People's Bank of China issues currency, which is guaranteed by China's sovereign credit. On the other hand, the People's Bank of China issues digital currency to commercial banks, and commercial banks use digital currency externally, which is guaranteed by the credit of commercial banks. This gives China's digital currency an unprecedented credit basis. The issuance of digital currency by commercial banks means that a special credit guarantee contract is signed between commercial banks and users. Once a problem occurs, commercial banks will first assume the guarantee responsibility. After assuming the guarantee responsibility, commercial banks can report to the People's Bank of China, and the People's Bank of China relies on sovereignty to solve the problem. Therefore, no matter where the digital currency issued by China has problems, it will eventually become a sovereign issue of China. According to the principle of "sovereign immunity", China can safeguard national sovereignty in any place and in any way, and is not subject to the jurisdiction of other countries' judicial organs. The digital currency issued by the People's Bank of China is not for every consumer, but for China's state-owned commercial banks. China's state-owned commercial banks have a relatively high credit rating. Therefore, consumers obtain digital currency through state-owned commercial banks, and the risk of use is relatively low. It can be said that the credit level of digital currency issued by China is unmatched by the electronic currency issued by e-commerce companies in any other country.

Fourth, China's unique method of issuing digital currency allows China to bypass existing international trading rules in the process of promoting digital currency, opening the door to the internationalization of the RMB.

The current international monetary order is centered on the US dollar. As the issuer of the US dollar, the US Federal Reserve has done everything it can to maintain the stability of the US dollar price in order to ensure the hegemony of the US dollar. Whether it is requiring the Organization of Petroleum Exporting Countries to force all oil-buying countries to use US dollars for settlement, or the United States expanding the international influence of the US dollar through international aid, the purpose is to ensure that the power to levy US dollar currency tax (seigniorage) will not be challenged.

American e-commerce companies realize that digital currency has a broad development prospect and decide to develop their own digital currency. However, at a hearing held by the US Senate, US congressmen attacked e-commerce companies for issuing digital currency. Although American e-commerce companies have advanced technology, they are forced to give up their efforts to issue digital currency under pressure from the US Congress.

"The green mountains cannot cover it, after all, it flows eastward." Now it seems that in order to maintain its hegemonic position, the Federal Reserve has to consider issuing digital currency. However, it is very difficult for the Federal Reserve to settle the vested interest groups, amend the Federal Reserve's legal system, and bypass the existing credit system to establish a safe digital currency system. This is because American commercial banks are not savings banks but credit banks, and American Wall Street investment banks make profits by issuing bank cards and charging loan interest. If digital currency is issued, then American investment banks must change their business strategies and even adjust their business models and structures. Whether the Federal Reserve can overcome domestic difficulties and issue a secure digital currency on the basis of coordinating the interests of all parties needs further observation. However, one thing is certain, China will speed up the issuance of digital currency and walk ahead of most countries in the world.