People's Daily Online: How far is it from the official launch of digital currency? How will it affect our lives in the future?

Editor's note: This article is from People's Daily Online.

The sudden outbreak of the COVID-19 pandemic in 2020 has impacted traditional industries, but it has also created favorable conditions for the development of new digital economic formats, sparking widespread attention to digital currencies. A few days ago, a photo of the central bank's digital currency being tested in an Agricultural Bank account went viral on the Internet. Many people began to cheer: "Digital currency is here!"

In this regard, the relevant person in charge of the Digital Currency Research Institute of the People's Bank of China stated that the current information about the digital RMB system (DC/EP) circulated on the Internet is the test content in the process of technical research and development, and does not mean that the digital RMB has been officially launched. The current closed test of the digital RMB will not affect the commercial operation of listed institutions, nor will it have an impact on the RMB issuance and circulation system, financial markets and social economy outside the test environment.

my country started the research and development of digital currency in 2014. "At present, the research and development of digital RMB is progressing steadily. The digital RMB system has basically completed the top-level design, standard setting, function development, joint debugging and testing, and follows the principles of stability, security, controllability, innovation and practicality. At the current stage, internal closed pilot tests will be carried out in Shenzhen, Suzhou, Xiong'an, Chengdu and future Winter Olympics scenes to continuously optimize and improve functions." The person in charge said.

So, what is digital currency? How to use digital currency? What is the difference between digital currency and Alipay and WeChat Pay? Will cash be completely replaced? Will it cause inflation? What impact will it have on our daily lives?

Question 1: What is the central bank digital currency? How is it different from virtual currency?

The central bank's digital currency is the electronic version of the RMB. Its English name is: digital currency/electronic payment, abbreviated as DC/EP.

In terms of positioning, DC/EP can replace M0 (generally refers to cash in circulation), rather than M1 (M0 + demand deposits of various units) and M2 (M1 + residents' savings deposits + unit time deposits + other unit deposits + securities company customer deposits). . .

In terms of usage scenarios, the central bank's digital currency does not pay interest and can be used in small, retail, and high-frequency business scenarios; when using it, all current regulations on cash management, anti-money laundering, anti-terrorist financing, etc. should be observed, and large and suspicious transactions of the central bank's digital currency should be reported to the People's Bank of China.

In December 2019, Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, said that the digital RMB developed by the People's Bank of China is not a crypto asset as everyone understands, but the digitalization of the RMB.

Therefore, the central bank's digital currency is legal tender, equivalent to legal tender, has national credit and legal compensation, and has the highest effectiveness and security.

This is the most fundamental difference between digital currency and virtual currencies such as Bitcoin. As we all know, Bitcoin has no value basis, does not enjoy any sovereign credit guarantee, cannot guarantee currency stability, and cannot become an effective payment tool.

"The renminbi is for spending, not for speculation. Digital currency neither has the speculative characteristics of Bitcoin, nor does it have the requirement of currency basket assets to support its value like stablecoins," said Mu Changchun.

Question 2: How to use digital currency? What is the difference between it and Alipay and WeChat Pay?

Nowadays, mobile payment is highly developed, and people are used to carrying only mobile phones and no cash when going out. So, how to use the central bank's digital currency? What is the difference between it and Alipay and WeChat Pay?

In terms of user experience, although the central bank's digital currency is similar to Alipay and WeChat Pay in that they both require a mobile phone, using the central bank's digital currency to pay is actually the same as using cash, while Alipay and WeChat Pay still use the balance in personal bank cards.

It is understood that when using digital currency, no network or bank account is required. As long as the mobile phone is equipped with a DC/EP digital wallet, the transfer function can be realized by touching two mobile phones together, which is called "dual offline payment" for both the payer and the payee. In an environment without network or poor network signal, Alipay and WeChat Pay are useless.

At the same time, the central bank's digital currency can also meet some of people's normal anonymous payment needs, while Alipay and WeChat Pay must be paid with real names.

More importantly, the two have different credit bases and different effectiveness. The central bank's digital currency is legal tender and has national credit, while WeChat Pay and Alipay are just a payment method based on commercial bank deposit currency settlement, and behind it is the bank's commercial credit.

That is to say, if an institution or individual does not accept payment via Alipay or WeChat, there is no legal problem; however, it is illegal if they refuse users from paying with digital currency.

Question 3: Will digital currency trigger inflation? Will it completely replace cash?

Mu Changchun said that the central bank's digital currency should start with replacing paper money and coins in circulation with digital currency, not replacing all RMB. The balance in commercial bank accounts actually already exists in digital form, so there is no need to replace it. In other words, we can use digital currency equivalent to 100 yuan to replace 100 yuan in cash in circulation.

However, industry insiders believe that even if the central bank's digital currency DC/EP is launched, it will not be possible for digital currency to completely replace cash for a long time, and the two will coexist for a long time. Digital currency can be used as a supplement to the means of payment for people's daily consumption. China's move towards a "cashless society" is a long-term process and cannot be achieved overnight.

It is worth noting that when digital currency is issued, a two-tier operating model is implemented, that is, the People's Bank of China first exchanges the digital currency to banks or other operating institutions, and then these institutions exchange it to the public, ensuring that the central bank's digital currency is not over-issued and does not cause inflation.

At present, the central bank's digital currency is still in the internal closed pilot test stage. In the future, as the central bank's digital currency is officially launched, people's payment options will be richer, more convenient and faster, which can further reduce transaction costs and improve financial operation efficiency.

"my country has certain advantages in the digital economy. If it can become a new highlight of economic development, the requirements for the research and development of digital currency will become higher and higher." Zhou Xuedong, director of the General Office and spokesperson of the People's Bank of China, said at the press conference on the first quarter financial data this year. (Comprehensive news reports from the central bank, CCTV, etc.)