China's legal digital currency: Digital currency must be issued by the central bank and is itself a currency

"At present, payments based on electronic accounts have become very common in China. However, this method is essentially just an information process of the existing legal currency and cannot be called digital currency in the strict sense. Digital currency, as legal tender, must be issued by the central bank. It is itself a currency and not just a payment tool," Yao Qian of the central bank pointed out in an article in "China Finance " a few days ago.

It is understood that the central bank is also preparing for the establishment of the Digital Currency Research Institute of the People's Bank of China, with Yao Qian as the head of the preparatory group. The preparatory group will publish some research results on China's legal digital currency in China Finance.

7 revelations from typical systems

Yao Qian sorted out the current digital currency concepts and put forward seven system design concepts for China's legal digital currency.

Drawing on typical electronic and digital currency systems, such as E-Cash , M-PESA , GDM , game coins, third-party payments, Bitcoin, BitMint , etc. ( some are only experimental systems, but have academic reference value ) , the design and construction of China's legal digital currency must carefully consider the following core issues.

Online and offline. Currently, the actual electronic currency systems are basically online. The issuance and circulation of China's legal digital currency should be able to support both online and offline parallel modes. For the simplicity of design, online / offline needs to have different specifications and processes.

Convenience and security. Convenience is an important factor in gaining market recognition, while security is the basis for the healthy operation of the entire system. How to balance convenience and security is a major issue. In order to improve efficiency and increase convenience, the processing of large and small amounts may need to be treated differently in terms of security mechanisms.

Real-name and anonymous. Digital currency can be implemented with real names, anonymous names, or a combination of the two. The design considerations for China's legal digital currency are "voluntary in the front and real names in the back".

Transaction and data analysis. In the big data and cloud computing environment, transaction security no longer completely relies on the traditional identity authentication system. It is worth paying close attention to the direction of ensuring transaction security and avoiding risks through customer behavior analysis. Strengthening customer behavior analysis is an important consideration for the central bank to issue legal digital currency. On a macro level, digital currency can be used for big data analysis, but on a micro level, it cannot infringe on the privacy of legitimate users.

Association with bank accounts. Most of the electronic currency systems currently in operation are based on bank accounts, while pure digital currency systems are not necessarily associated with bank accounts.

Ecosystem construction. The design of China's legal digital currency should cooperate with the financial and scientific communities, conduct in-depth research and make rational use of various new innovative technologies to optimize and improve the technical framework for the issuance and circulation of digital currency, fully foresee technological progress, and introduce the concept of long-term evolution and continuous optimization.

Expectations for blockchain technology. Blockchain technology is the prototype of the next generation of cloud computing and has attracted much attention from all parties, but mature enterprise-level application cases are still rare. "Private cloud + high-performance database + mobile terminal" and "private cloud + blockchain + mobile terminal" may be two related but different ideas. Making the central bank more powerful, making data more secure, making the terminal smarter, and making personal payment behavior more dynamic must be the goal of the central bank's digital currency in the future. If blockchain technology is applied to the research and development of the central bank's digital currency, can it be necessary to transform it ? Faced with the speed and efficiency issues of large-scale transactions, how can blockchain technology itself achieve substantial breakthroughs ?

In short, improving transaction security and convenience, reducing clearing links, and lowering transaction costs are the starting points for digital currency issuers.

Operational framework: the dual model of central bank and commercial banks

The operating framework of legal digital currency is also a very critical issue.

Fan Yifei, deputy governor of the People's Bank of China, believes that there are two models to choose from: one is for the central bank to issue digital currency directly to the public ; the other is to follow the traditional "central bank - commercial bank" binary model.

The first is also a common model for some digital currencies. In this case, the central bank directly provides the issuance, circulation and maintenance services of legal digital currency to the whole society. The second is still based on the current paper currency issuance and circulation model, that is, the central bank issues digital currency to the business library of commercial banks, and commercial banks are entrusted by the central bank to provide legal digital currency deposit and withdrawal services to the public, and work with the central bank to maintain the normal operation of the legal digital currency issuance and circulation system.

Fan Yifei said he prefers the second model: "First, it is easier to gradually replace paper money with legal digital currency under the existing currency operation framework without subverting the existing currency issuance and circulation system ; second, it can mobilize the enthusiasm of commercial banks to jointly participate in the issuance and circulation of legal digital currency, appropriately disperse risks, and accelerate service innovation to better serve the real economy and social livelihood."

Issuance of digital currency: Learning from mobile payments also requires guarding against risks

In the future, the circulation of digital currency will also draw on the current technical route of mobile payment, but at the same time, we must also guard against risks and pay attention to security points. The central bank's digital currency research team has conducted research on the reference of mobile payment to digital currency.

Mobile payment types can be divided according to payment scenarios and payment methods.

By payment scenario, it mainly includes remote payment and near-field payment. By payment method, it mainly includes online payment and offline payment.

From the perspective of mobile payment technology, remote payment mainly uses mobile APP as a payment tool to realize online payment. The technology routes used by near-field payment are not uniform, but can be roughly divided into three categories: based on separate payment hardware technology solutions, standard Near Field Communication ( NFC ) technology solutions and barcode payment solutions.

In essence, the technology solution based on separate payment hardware is a continuation of the traditional smart card payment solution, the standard NFC technology solution is a payment solution based on smart cards and mobile phones, and the working mode of the barcode payment solution is similar to the remote payment method.

The research team pointed out that the convenience inherent in mobile payment will make it the mainstream payment method in the future. The central bank's issuance of digital currency also needs to combine this trend and explore the integration model of digital currency circulation and mobile payment. However, we must also realize that the current security issues of mobile Internet are endless, which objectively has a serious impact on the security of mobile payment. Therefore, in terms of the mobile payment security of legal digital currency in the future, it is necessary to establish a security system covering the underlying hardware security, terminal application security, communication security, scenario security and platform security, and build a financial security protection network in an all-round, multi-level and three-dimensional manner.