By Sun Zhaodong, Senior Economist of China Construction Bank and Author of The World’s Renminbi 2016 is the first year that the RMB joins the Special Drawing Rights (SDR) of the International Monetary Fund ( IMF ) and becomes one of the five currencies included in the basket . This is also an important step in the reform and development of the international monetary system. Since the international financial crisis in 2008 , the International Monetary Fund has been exploring and promoting the reform of the international monetary system. Super-sovereign currency has gradually become the reform direction of the international monetary system, and building a stable and secure global financial market has become more and more a consensus in the construction of the international monetary system. The RMB can take advantage of the new opportunities for the development of digital currency and play an important role in the construction of super-sovereign currency in the international monetary system. However, for new things, we must clarify their concepts and explore their essence in order to see their connotation and vitality, and to judge whether they represent the future and the true trend of their future development. The Nature of Digital Currency Currency is a general equivalent that has the functions of a value scale, a means of circulation, a means of payment, a means of storage, and a world currency. It is a contract between the owner and the market regarding the right of exchange, and is fundamentally an agreement between the owners. The contractual nature of currency determines that currency can have different forms, such as general equivalents, precious metal currency, paper money, electronic currency, digital currency, etc. Although digital currency is expressed in digital form, its essence should first be currency. Therefore, digital currency must also have core functions such as a value scale, a means of circulation, a means of payment, a means of storage, and a world currency. Furthermore, digital currency can be regarded as the digitization of physical currency, or the electronicization of currency. For example, cryptographic currency and convertible virtual currency in digital currency are all called digital currency. At present, there are many kinds of digital currencies in the world, but they are mixed. Some are not digital currencies in the strict sense. Generally speaking, digital currency is nothing more than two forms. One is digital currency issued, settled and cleared using cryptographic algorithms, and the other is digital currency based on the electronic exchange and use of physical sovereign currency. Therefore, digital currency is not completely equivalent to virtual currency, and virtual currency is not all digital currency. It is worth noting that most real digital currencies are electronic or digital versions of physical currencies, and no central bank of a sovereign country has directly issued digital currencies. The so-called digital currencies popular on the Internet, such as Bitcoin and Litecoin , are not linked to base currencies and are not issued by sovereign countries. In essence, these virtual currencies should be defined as digital ( investment ) products rather than real digital currencies. The development prospects of digital currency In fact, people's understanding of digital currency has developed along with the development of Internet technology. At present, many countries are conducting official or private digital currency research and operation attempts, and are constantly summarizing lessons learned. In 2015 , the transaction volume of digital currency in relevant European countries and regions exceeded 1 billion euros. Although the total amount is not large, it has developed rapidly. In early 2016 , the Bank of England announced that it was studying whether the central bank should issue digital currency. Andy Haldane , chief economist of the Bank of England, even said : Switching to digital currency will be a " great technological leap forward " ; it is worth noting that the Norwegian DNB Bank has cancelled its cash counter service. The bank called on the government to completely stop using paper money. In fact, compared with paper money, digital currency has obvious advantages. In addition to saving issuance and circulation costs, it can also improve the efficiency of transactions or investments, and enhance the convenience and transparency of economic transaction activities. The issuance of digital currency by the central bank can also ensure the consistency of financial policies and the integrity of monetary policies, and also guarantee the security of currency transactions. In January 2016 , the People's Bank of China held a seminar on " New Development of Digital Currency " . The meeting pointed out that with the continuous development of information technology, digital currency has brought new opportunities and challenges to the current monetary policy. Digital currency will bring a series of positive effects and help solve the shortcomings of the current monetary policy. The continuous development of " digital encryption " technology, with its advantages such as convenience, high security and open and transparent information, will also make digital currency closer and closer to people's lives. In short, the digital age has arrived, and digital currency will develop along with the development of financial reforms in the digital age. It can be foreseen that in the next 5 to 10 years, sovereign currency countries will issue digital currencies, and digital currencies will also become international currencies and supranational currencies, circulating in the world. Can become the anchor currency of supranational currency In theory, currency must be based on the credit guarantee of sovereign states. Without the credit guarantee of sovereign states, currency cannot be established. However, the form of currency has been striving to improve. For example, many sovereign states hope to unify their currencies. For example, the creation of the euro by the European Union is a good example of a regional supranational currency. Since its launch, the euro has played a more obvious role in the European economy in the past decade, but its outcome is still uncertain because the euro can only be maintained on the basis of long-term political consultation. As the international financial crisis spreads to Europe, the weakening of the euro has begun to show. As the top international currency, the US dollar is achieved through a series of treaties and the United States provides the world with a market-opening currency method, but in theory there is a Triffin dilemma, so periodic financial crises have brought troubles to the world economy and finance. Therefore, through the digital currency innovation of sovereign countries, with the digital currencies of several dominant currency countries as anchors, we can creatively reform and improve the current international monetary system, promote the improvement of international reserve currencies in the direction of stable value, orderly supply, and adjustable total amount, and maintain the stability of the global economy and finance. This is an innovative way to seek supranational currencies based on the international monetary system dominated by top international currencies and international dominant currencies. Digital RMB promotes reform of the international monetary system In 2009 , the RMB entered the first year of internationalization. In 2015 , it was allowed to join the SDR currency basket. China's RMB has become the world's RMB. The research on RMB digitization and digital RMB has also started. As early as 2014 , the People's Bank of China established a special digital currency research team. As the previous generation of currency, paper money has low technical content. From the perspective of security and cost, it is a general trend to be replaced by new technologies and new products. Although it is mainly for substitution to reduce costs, advanced digital currency must be issued by the central bank as legal tender, and the issuance, circulation and trading should follow the idea of integration with traditional currency and implement the same principles of management. This can enhance the central bank's control over money supply and money circulation, and can also enhance the convenience and transparency of economic transaction activities, and reduce illegal and criminal activities such as money laundering. After the RMB joins the SDR , the reform of the super-sovereign basket can be led by the basket currency, such as exploring the IMF's attempt to innovate based on digital currency rules, namely eSDR . The issuance of digital RMB to connect the eSDR international currency pricing and reserve currency use can better promote the internationalization of the RMB. In the future, the establishment of a digital RMB issuance and circulation system will also help China to formulate standards and participate in the construction of international digital currencies and international super-sovereign currency systems, and will be more conducive to China's financial infrastructure construction, further improve the payment systems of the international and domestic markets, and improve payment and clearing efficiency, laying the foundation for the development of digital RMB in the world. Since April 2016 , the People's Bank of China has simultaneously released foreign exchange reserve data in both the U.S. dollar and the SDR as reporting currencies. In the past, only the U.S. dollar was reported, which would cause unilateral reporting trend risks. This time, both are taken into account to form a two-dimensional reference, which is beneficial to the objectivity of RMB foreign exchange reserves. At the same time, with SDR as the accounting unit, RMB bonds denominated in SDR may also be issued in the future , which will bring new areas for the internationalization of the RMB, and have important historical significance and operational value for the innovation of RMB digital currency linked to the super-sovereign currency basket and the promotion of digital super-sovereign currency. Several suggestions for strengthening the construction of digital RMB With the development of digital currency, whether the original money supply statistics, monetary policy and regulatory policy can be applied to digital currency is an important issue. To this end, the author suggests that the digital RMB in the current context of RMB internationalization needs to focus on the construction of four aspects : First, it is recommended to do a good job in digital currency theory research and institutional innovation. How can the monetary system under the traditional banking system be connected and transitioned with the digital currency system ? The basic theory of digital currency in monetary banking needs innovation. The issuance and withdrawal of the original monetary bank is based on the binary system of " central bank - commercial bank institutions " . According to traditional theory, it will produce a credit expansion " money multiplier effect " , but the new issuance model of digital currency will bring about major changes to the money multiplier mechanism. If the operation of digital currency is still based on this binary system, the transportation and custody of digital currency will undergo fundamental changes. The transportation method will become electronic transmission, and the storage method will change from the central bank's issuance library and the banking institution's business library to the cloud computing space for storing digital currency. Although the security and efficiency of digital currency issuance and withdrawal will be greatly improved, the theories guiding practice in all aspects need to be based on the updating and development of digital currency theory and system. Second, it is recommended that the central bank strengthen supervision over the use of blockchain technology by commercial banks and digital currency operating institutions. Blockchain is a technical solution that collectively maintains a reliable database in a decentralized and trustless manner, which can achieve simultaneous settlement and clearing of transactions. However, there are still technical problems that need to be solved in terms of how to ensure security and convenience in the process of value exchange, and the circulation and issuance of digital currency instead of paper currency also require supervision of the security, authenticity, storage and other aspects of the technology. Third, it is recommended that the central bank develop digital currency technology in layers and grades. Digital currency accounts can be divided into account-based and non-account-based. Both accounts can be traded in layers and queried in layers. Given that blockchain technology is an optional technology, its characteristics are distributed bookkeeping, non-account-based, and cannot be tampered with. If digital currency focuses on protecting corporate or personal privacy, blockchain technology and storage decompression technology that occupy less resources can be used to cope with massive transactions and query scales. Fourth, it is recommended that the central bank should fully consider the international standard design and interface preparation when designing the issuance and withdrawal of digital currency. For example, the design should take into account the promotion of the SDR ( Special Drawing Rights ) digital interface based on distributed rules, and it is best to be compatible with the swap function of other sovereign digital currencies. | 
