XBIT Tao Maowen: A brief discussion on my country's legal digital currency DCEP

On Wednesday, the French central bank, the Banque de France, announced that it had begun experimenting with central bank digital currencies since the beginning of the year and had successfully tested a blockchain-based digital euro for the first time.

The Bank of France has previously revealed that it will reorganize the regulatory system to include digital currencies in regulation. The Governor of the Bank of France once said that he hopes France will become the first European country to issue digital currency.

At the same time, the Bank of Korea also announced that it is accelerating the technical review of the pilot test of the central bank digital currency (CBDC), and analyzing the CBDC pilot projects in 14 countries including China, Norway, Sweden, Switzerland, the United Kingdom and Japan as a technical reference for South Korea's CBDC test.

It can be seen that countries around the world are accelerating the development and testing of central bank digital currencies. Why are countries scrambling to launch their own central bank digital currencies? In terms of the current international situation, China is undoubtedly at the forefront in the development of digital currencies.

Since the high-level collective study at the end of October last year, the topic of blockchain has been on the screen again, and great attention has been paid to the central bank's digital currency DCEP, which has been "brewing" for five years. Some people also equate DCEP with cryptocurrencies such as Bitcoin, believing that the launch of DCEP will make the cryptocurrency market flourish.

Today I will talk to you about my views on my country's legal digital currency.

Before I share this with you, I want to say sorry to those friends who hope that DCEP will bring about a bull market in digital currencies such as Bitcoin. Your wish will be 100% unfulfilled. To put it more directly, DCEP will only be a negative, not a positive, effect on the existing digital currency market.

Because countries and individuals think about problems from different perspectives. As individuals, we hope that the currency in our hands will appreciate, but from the perspective of the country, currency is a measure of value and a means of circulation. Especially for economically stable countries such as China, the United States, France, and Switzerland, the stability of their monetary system is crucial.

As for the Petro that Venezuela once issued, I believe that its national economy is on the verge of collapse, and the issuance of digital currency is more of a hasty act to raise funds to save the ruling status of those in power.

Therefore, the digital currency of my country's central bank must be used rather than speculated. Mu Changchun, director of the Central Bank's Digital Currency Research Institute, once mentioned that the central bank's digital currency DCEP must follow the principle of "spending the currency but not speculating on it."

DCEP (Digital Currency Electronic Payment). DCEP is China's legal digital currency project. It is a legal digital currency that has not been issued by the People's Bank of China and is a type of DIGICCY (digital currency).

In my opinion, the central bank’s launch of legal digital currency has two main purposes: one is to replace M0, and the other is to consolidate the monetary sovereignty of the RMB.

Why does DCEP want to replace M0? We often hear M0, M1, M2, etc. What does M0 mean?

Here I have to explain to you that M (Money Supply) is an important indicator reflecting the money supply. Money supply refers to the total amount of money that can be used for various transactions in a country's economy within a certain period of time. Money supply can be divided into different levels according to the strength of money liquidity.

Of course, due to differences in economic development, each country has different indicators for measuring money supply, and the division of M here is not exactly the same. Taking my country as an example, the People's Bank of my country divides the money supply indicator into five levels, M0-M4. Of course, my country rarely uses M3 and M4 in statistics, so I will not elaborate on them here.

M0: Cash in circulation

M1: M0 + corporate demand deposits + deposits of government agencies, groups and military units + rural deposits + credit card deposits held by individuals

M2: M1 + savings deposits of urban and rural residents + fixed-term deposits of corporate deposits + foreign currency deposits + trust deposits

(Explanation source: Baidu Encyclopedia)

Here we can see that M0 is the cash in circulation (banknotes and coins). Due to the application and popularization of electronic payment, only fewer and fewer banknotes are in circulation. The issuance, printing, collection and storage of banknotes and coins are relatively costly, the circulation system has many levels, and they are easy to be counterfeited and inconvenient to carry. In addition, there is often a risk of being used for illegal activities such as money laundering and illegal transactions. The necessity of digitizing M0 is increasing day by day.

DCEP hopes to replace the existing M0 circulating banknotes and coins. It does not hope to launch another legal currency besides the existing RMB, nor does it want to issue a digital currency similar to Bitcoin. This is why it is displayed as "digital RMB" on the DCEP test interface of China Construction Bank.

Seeing this, you must be wondering, Alipay and WeChat Pay are already very convenient now, and almost no one uses cash, so why not simply eliminate paper money instead of going to the trouble of issuing a digital RMB?

One thing we need to make clear is that the biggest difference between the central bank's DCEP and current electronic payments is that electronic payments such as Alipay rely on the bank's account system, are based on the existing bank account system, and adopt a tightly coupled account model. It cannot fully meet the public's demand for easy-to-use paper currency and anonymous payment services, and it is impossible to completely replace M0.

In addition, the popularity of online payment and mobile payment is only relative to us, but there are still many people in our country who do not know how to use electronic payment, especially in poor and remote areas with poor account services and communication network coverage, and people still rely heavily on paper money. DCEP maintains the properties and main features of paper money and meets the needs of portability and anonymity. DCEP is essentially different from the existing third-party payment.

Another point is that DCEP can improve the central bank's control over money supply and circulation. Currently, M0 is completely anonymous, and regulators cannot track its flow. DCEP can accurately track the circulation and transactions of money, allowing the central bank to have a clearer grasp of the operation of the macro-economy and improve the accuracy of monetary policy. It can also regulate illegal and criminal activities such as money laundering and tax evasion.

The second point is to consolidate the sovereign status of the RMB.

Judging from the trend of currency development, paper money has low technical content and is no longer suitable for the current social development needs for currency. Although many commercial institutions have made great contributions to the promotion and popularization of electronic payments and built advanced payment methods for society, for a large country like ours, if payments are controlled by third-party institutions, there will be risks in both the formulation and supervision of monetary policy.

For example, if we compare Xbao and Xxin Payment to a bank, everyone's money is stored in this bank, and all transactions are recorded in the bank's internal accounts. Although these institutions are large in size, as long as they are companies, the possibility of bankruptcy cannot be ruled out. After all, banks can also go bankrupt, so for the regulators, it is necessary to prevent it before it happens.

Moreover, my country's cross-border clearing is still highly dependent on the Society for Worldwide Interbank Financial Telecommunication (SWIFT) and the New York Clearing House Interbank Payments System (CHIPS) in the United States. The issuance of DCEP is expected to free us from our dependence on the existing SWIFT and CHIPS payment systems and improve the cross-border RMB clearing system.

On the other hand, digital currencies such as Libra launched by large institutions such as Facebook have great influence and will challenge the sovereign currencies of various countries, sounding the alarm for national currencies. Libra has billions of users of the company behind it and may become a world-class supranational currency, which will have a huge impact on a country's monetary policy and sovereignty. DCEP can effectively deal with the impact of digital currencies such as Libra.

"The general trend of the world is vast and unstoppable. Those who follow it will prosper, while those who go against it will perish."

The birth of DCEP can be said to have responded to the current complex international situation and grasped the development context of the times. It not only brings a series of conveniences to our lives, but also has a vital impact on the country's monetary strategy!

Finally, I would like to remind you again not to believe in any project hyped under the name of DCEP. The central bank's digital currency is to be used, not to be speculated.

If you agree with Mao Wen’s point of view, you might as well follow me. See you next Friday!