Dialogue with Lang Xianping: Why did the People’s Bank of China propose legal digital currency at this time?

Lang Xianping: Let me talk about blockchain first. Blockchain itself is a technology. Technology is neutral, and there is no so-called right or wrong. Therefore, developing blockchain and doing more research is right in itself, because it is a technical job. But the problem is that many virtual currencies are swindling people under the banner of blockchain. The only virtual currency that truly uses blockchain technology is probably Bitcoin, while the vast majority of other virtual currencies are just under the banner of blockchain.

Wang Mudi: It’s a wolf in sheep’s clothing.

Lang Xianping: Yes, they are hyping it up. Blockchain research is a science in itself, although it has many problems, such as low efficiency and high cost. But blockchain needs to be studied, so it is necessary for us to promote research at this moment.

Why do we study digital currency now? Let me give you an example. China has always been ahead of the world in terms of payment systems, so the fact that we are the first to launch digital currency is an indicator. But don’t have any doubts about the central bank’s digital currency, because it is completely different from virtual currency. First, the central bank’s digital currency has the government’s credit endorsement, while virtual currency does not. Second, the central bank’s digital currency is “centralized.” Bitcoin is “decentralized,” so these two differences are destined to be different.

How to understand it? For example, today we use RMB cash to buy things, 100 RMB per piece, this is paper money. In the future, you can take out your mobile phone, there is an App in it, with 100 RMB installed, and you can pay the other party, which is very convenient. Moreover, the digital currency itself has an encryption password, so it is easy to track. As long as you don't do anything illegal, the money will not be lost. If you launder money, it can also be tracked. Therefore, the central bank's research on digital currency is an improvement for the entire financial management, and it is an advanced system.

Lang Xianping: Moreover, Libra itself is backed by a backing, which is completely different from Bitcoin.

Mr. Huang: Libra is backed by a basket of currency reserves. So we in China should also work overtime to be the first to launch our own digital currency.

Wang Mudi: This is also a national strategy.

Mr. Huang: There is a fourth reason. Money laundering is mainly done through cash. At this time, cash is actually "decentralized". Once a cash transaction is made, it is impossible to track where the cash is traded. The national digital currency DCEP is equivalent to M0 (cash in circulation), that is, cash-based digital currency. At this time, there is a center and a tracking function, which is very helpful for anti-money laundering and preventing tax evasion.

Lang Xianping: Actually, we are not the first to develop a national digital currency. Many countries have developed digital currencies, but there are cases of failure. For example, Uruguay and Ecuador. The reason for their digital currency failure is very simple - the circulation volume is too small.

Mr. Huang: The central bank's digital currency draws on and uses some blockchain technologies. For example, blockchain is also distributed.

Lang Xianping: But the central bank has not given the all-clear for digital currency.

Mr. Huang: It’s not dead. It just borrowed and used some parts, such as encryption technology.

Wang Mudi: It does not use a distributed ledger.

Huang Sheng: There is no distribution. And another point is that as long as it can improve the efficiency of flow, the central bank’s digital currency does not exclude any technology.

Mr. Huang: Moreover, blockchain is “decentralized”, but central bank digital currency is not.

Lang Xianping: The result of "decentralization" is very inefficient and the cost is very high.

Huang: Yes, blockchain technology is very advanced, but in fact it is very slow. For example, if you use Bitcoin transactions, the highest speed is 1 second settlement. Libra uses blockchain now, and it may only process 1,000 transactions per second. For a huge country, 1,000 transactions per second is far from meeting the needs of the economy.

Lang Xianping: It takes you two hours to buy a cup of coffee.

What is the difference between China's central bank digital currency and Libra? Libra is backed by a "basket of foreign exchange reserves", including the US dollar, Swiss franc, etc. China's central bank digital currency is exchanged 1:1 with the RMB. Libra also has a center, which is Facebook. The center of China's central bank digital currency is the central bank.

Lang Xianping: Yes, but Facebook may go bankrupt. Libra is a corporate behavior. As long as Facebook does not have problems, there will be no problems. However, the probability of Facebook having problems is greater than zero.

Huang: Facebook also has a problem, its information is easily leaked. But the central bank’s digital currency is guaranteed by the central bank and the country’s laws.