The central bank is developing a legal digital currency system that will coexist with paper currency in the future

Central bank digital currency is a legal tender backed by national credit. Photo courtesy of Visual China. Yao Qian, head of the preparatory group of the Central Bank Digital Currency Research Institute and deputy director of the Science and Technology Department, said that the digital currency issued by the central bank is currently mainly a substitute for physical cash, reducing the cost of issuing and circulating traditional paper money, and improving the convenience and transparency of economic transactions. Currently, the development of a prototype system for legal digital currency is underway. As for when China's legal digital currency will be launched, there is no timetable.

Perhaps in the near future, the People's Bank of China will issue its own digital currency. Yesterday, the central bank's official website released a list of 2017 recruitment positions for the central bank's directly affiliated units, showing that the People's Bank of China's Printing Science Research Institute plans to recruit six professionals with master's or doctoral degrees to carry out digital currency research and development this year.

One of the recruitment positions is to research key cryptographic technology

Beijing Youth Daily reporter noted that five of the positions are mainly engaged in the architecture design and development of the software and hardware systems of digital currency and related underlying platforms, and those with experience in system architecture design, blockchain technology development or application experience, and big data platform development experience are preferred. Another position focuses on the research of key cryptographic technologies used in digital currency, including symmetric and asymmetric cryptographic algorithms, authentication and encryption.

In fact, the central bank has already started research on digital currency. According to Yao Qian, head of the preparatory group of the Digital Currency Research Institute of the central bank and deputy director of the Science and Technology Department, the People's Bank of China has established a special research group for issuing legal digital currency since 2014 to conduct forward-looking research on issues related to digital currency and demonstrate the feasibility of the central bank issuing legal digital currency. In 2015, the team was strengthened to further study the digital currency issuance and business operation framework, key technologies of digital currency, the circulation environment of digital currency issuance, legal issues faced by digital currency, the impact of digital currency on the economic and financial system, the relationship between legal digital currency and privately issued digital currency, and the international experience of issuing digital currency. A series of research reports on the issuance of digital currency by the People's Bank of China have been formed, and the prototype plan for the issuance of legal digital currency by the central bank has completed two rounds of revisions. Some of these research results have been submitted to the State Intellectual Property Office for patent applications, while others have been selected and published in China Finance in the form of special topics.

Issuing digital currency can reduce the cost of issuing paper currency

On January 20 this year, the People's Bank of China held a seminar on digital currency. Digital currency research experts from the People's Bank of China, Citibank and Deloitte discussed and exchanged views on topics such as the overall framework of digital currency issuance, national digital currency in currency evolution, and nationally issued cryptocurrencies. The meeting believes that under the current new normal of my country's economy, exploring the issuance of digital currency by the central bank has positive practical significance and far-reaching historical significance. The issuance of digital currency can reduce the high cost of issuing and circulating traditional paper currency, improve the convenience and transparency of economic transaction activities, reduce illegal and criminal activities such as money laundering and tax evasion, enhance the central bank's control over money supply and circulation, better support economic and social development, and help achieve inclusive finance in an all-round way. In the future, the establishment of a digital currency issuance and circulation system will also help my country build a new financial infrastructure, further improve my country's payment system, improve payment and clearing efficiency, and promote economic quality, efficiency and upgrading.

The meeting required that the People's Bank of China's digital currency research team should actively absorb important results and practical experience from digital currency research at home and abroad, continue to advance on the basis of previous work, establish a more effective organizational guarantee mechanism, further clarify the strategic goals of the central bank's issuance of digital currency, do a good job in key technology research, study the multi-scenario application of digital currency, and strive to launch the central bank's digital currency as soon as possible.

Digital currency and paper currency will coexist in circulation in the future

Yao Qian said that the digital currency issued by the central bank is currently mainly to replace physical cash, reduce the cost of issuing and circulating traditional paper money, and improve the convenience and transparency of economic transactions. Overall, the central bank will give full consideration to the existing monetary policy regulation, money supply and creation mechanism, and monetary policy transmission channels when designing digital currency.

Unlike popular virtual currencies such as Bitcoin, the central bank digital currency is a legal currency issued by the central bank, encrypted, and backed by national credit. It is understood that the development of a prototype system for legal digital currency is currently underway. As for when China's legal digital currency can be launched, there is no timetable at present.

"China has a large population and a large size. It takes about ten years for China to change a version of paper currency, which can be completed in a few months in a small country. China has a vast territory and a large population, and the currency circulation conditions are complex, and the social payment needs are diverse. At the same time, the circulation and use of digital currency requires certain conditions, and its development is also a process of continuous exploration and improvement." Yao Qian said that, therefore, for a long period of time, digital currency and paper currency will coexist and circulate. For ordinary people, when they go to the bank to withdraw money in the future, they can choose to exchange physical cash or digital currency.

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The RMB central parity rate against the US dollar fell for eight consecutive days

As the US dollar index soared to 100 points, the RMB exchange rate against the US dollar once again showed a significant depreciation. Yesterday, the RMB central parity rate against the US dollar was 6.8495, down 204 points. This was the eighth consecutive trading day of decline since the 4th of this month, and it also hit a new low in nearly 8 years since December 2008. Since the beginning of this year, the RMB central parity rate against the US dollar has depreciated by 5.2%, and compared with the highest value of 6.0930 at the beginning of 2014, it has fallen by 11%. The Beijing Youth Daily reporter noted that since the expected value of 6.8 predicted by some institutions has fallen below, most institutions currently believe that the RMB exchange rate against the US dollar will be around 7.0 by the end of the year.

Yesterday morning, the onshore RMB spot exchange rate was affected by the sharp reduction in the central parity rate, and it fell rapidly at the opening, reaching an intraday low of 6.8640. In the afternoon, the market gradually stabilized, and the RMB rebounded under the influence of the buying of major banks. It closed at 6.8530 at 16:30, down 121 points from the previous trading day. The offshore RMB exchange rate against the US dollar also fluctuated downward yesterday, and did not stop after breaking the 6.86 mark. As of 12:15, it reached 6.8690, and at 17:18, it had fallen to 6.8724.

Zhong Yue, China analyst at FXTM, believes that after falling below 6.85, the pressure on the RMB to depreciate continues to increase, 6.9 is just around the corner, and it is expected that there will be some support at the 7.0 mark by the end of the year.

"The recent trend of the RMB is consistent with the trend of the US dollar." Yesterday, Chen Xiayi, senior manager of the Asian research department of the National Australia Bank, said that after Trump's election, this situation will continue. The US dollar will strengthen, the RMB will continue to weaken, and other currency baskets will also continue to weaken or remain stable. She believes that if the negative impact on the RMB continues to appear, the RMB exchange rate against the US dollar is likely to move towards 7.1.

"In the longer term, we do not expect the RMB to depreciate significantly, especially considering the bilateral trade game between China and the United States. We maintain our forecast that the RMB exchange rate against the US dollar will be around 6.98 by the end of 2017." CICC's latest research report pointed out that looking forward, the RMB may face depreciation pressure in the short term, but there is limited room for further weakening in the medium term. Faced with the uncertainty of Sino-US trade, China may take the opportunity to release pressure in advance and allow the RMB to depreciate appropriately as the US dollar strengthens. The RMB central parity rate in the past two trading days was basically determined according to the established mechanism of "closing exchange rate + changes in the exchange rate of a basket of currencies". The central bank just did not intervene in foreign exchange more actively to support the RMB.