Nine interpretations of Governor Zhou Xiaochuan's recent top-level design ideas for digital currency issuance

The biggest "news figures" on the first day after the 2016 Spring Festival were Governor Zhou Xiaochuan and digital currency!

Editor's note: The biggest news today: Zhou Xiaochuan, the governor of the central bank, said in an interview with Caixin Weekly that digital currency must be issued by the central bank as legal tender. At the critical moment, mainstream financial media are still leading the public opinion. However, the new media who are not present have a variety of interpretations. The titles of some articles on WeChat public accounts are surprising to the author. So, on the romantic night of Valentine's Day, I will sit alone in front of the computer and write a few words.

First interpretation: The lack of sensitivity of the Chinese media to digital currency and blockchain

I am very happy to hear the official remarks from the top executive of the People's Bank of China on digital currency and blockchain. The issuance of digital currency by the central bank has clarified a point of view that digital currency and legal tender are no longer opposite currencies. In other words, in Governor Zhou's view, legal tender includes paper money and digital currency, and only digital currency issued by the central bank is legal currency.

Some media have expressed the view that the central bank’s attitude basically declared the death penalty for Bitcoin and some virtual currencies such as Q coins. I quickly came out to say a few words, it is simply nonsense . Everyone searched for several news reprints and analysis articles on WeChat, the titles are really scary, and even distorted the meaning of the governor. Basically, it exposes the lack of knowledge and sensitivity of the media as a whole about digital currency and blockchain.

Second interpretation: Blockchain is an optional technology for digital currency

As for whether blockchain technology is used to create digital currency, Zhou Xiaochuan said that blockchain technology is an optional technology. Zhou Xiaochuan also said that for the digital currency controlled by the central bank, a series of technical means, mechanism design and laws and regulations will be adopted to ensure the security of the digital currency operation system, which is different from the design concept of Bitcoin from the beginning. The author further interprets it in plain language: the design concept of Bitcoin is anarchism, while the digital currency issued by the central bank has legal status. It is completely correct and relatively objective.

The third interpretation: Digital currency makes third-party payment more prosperous

Governor Zhou said that digital currency and cash will be parallel and gradually replace each other for a long time. The deeper meaning of this is that both paper money and digital currency, which are also legal tender, will be used. Then the question is, some readers will definitely ask, isn’t Alipay a digital currency? The author answered on behalf of Governor Zhou: Of course not. Alipay is just a platform or means of payment for third-party payments. Third-party payments represented by Alipay have an absolute leading position in the world. The issuance of digital currency is not to subvert Alipay. On the contrary, it is a more exciting benefit. The issuance of digital currency will definitely make third-party payments more prosperous.

The fourth interpretation: Blockchain research results drive the issuance of digital currency by the central bank

Zhou Xiaochuan said that the central bank actually started studying digital currency a long time ago, and held an internal discussion meeting in January. The author also interpreted the content of the meeting. From the trend of historical development, currency has always evolved with technological progress and the development of economic activities. From the early physical currency, commodity currency to the later credit currency, they are all natural choices to adapt to the development of human commercial society. 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. Especially with the development of the Internet and the huge changes in payment methods around the world, the issuance and circulation system of digital currency is very necessary for the construction of financial infrastructure and the promotion of economic quality, efficiency and upgrading. The author's interpretation: The issuance of digital currency is imperative, and the key driving force is the progress of the Internet and technology. The most important thing is the results of global blockchain theoretical research in 2015 and the dissemination of professionals!

The fifth interpretation: How digital currency replaces paper currency.

Zhou Xiaochuan believes that there are several ideas: one is to imitate paper money, for example, transactions between paper money are anonymous, and digital currency also wants to be anonymous, which leads to its technical choice. However, the anonymity of paper money was not originally designed intentionally, but there is no other technology that can ensure the convenience of a large number of small transactions. Of course, some people also believe that it is better for digital currency transactions to be anonymous in the future, because if the government is likely to make mistakes, the privacy of private wealth and wealth use must be absolutely protected. The author believes that the attributes of currency, since there is a national concept, must be traceable and privacy-protective. Obviously, paper money is imperfect. From the perspective of the central bank, future digital currencies must do their utmost to protect private privacy, but social security and order are also important. In case of illegal and criminal problems, necessary verification methods must be retained, that is, a balance must be found between protecting privacy and combating illegal and criminal activities. The balance point of these two motivations can be achieved by technology, because technology itself is a protection of privacy, and at the same time, the code behind the technology is traceable. Code is law. It is of great significance for each country to issue digital currency.

The sixth interpretation: the correlation between digital currency and social governance

Let's expand the scope and move to the rules of social governance. We know that there are both open and closed rules in any society. In other words, social governance relies on not only the laws and state apparatus of the country, but also social organizations including religions and associations that play the role of maintaining order. For example, underworld organizations that are not recognized by many national governments play the role of maintaining order. The fundamental reason is that society is diverse and the behavior of people in society cannot be fully covered by the law. The programs, doctrines or rules of some special community organizations are unwritten behavioral constraints.

In writing this interpretation article, the author wants to express a point of view, that is, the issuers of digital currency can basically be divided into official and unofficial. Officially issued digital currency is legal tender, while unofficial currency is not legal tender, and is also a participant in the maintenance of social rules and order. The most important social rules are credit rules and transaction rules, so unofficial digital currencies are still of great value. So, from this perspective, the value of virtual currency will continue to exist. In the view of Governor Zhou Xiaochuan, we analyze that Bitcoin can still continue to exist, and it represents the rules of the people. The legal spirit of the Chinese mainland legal system is the most inclusive national legal principle. In vernacular, Bitcoin, you can do whatever you want, but the government will not recognize you.

From a cultural perspective, since the founding of the People's Republic of China, having multiple wives and concubines is not allowed, and only monogamy is allowed, but the third and fourth parties with non-legal status are still attractive. The same can be said of the identities of virtual currencies such as Bitcoin and Litecoin.

The seventh interpretation: Digital legal currency and digital "illegal" currency

According to Governor Zhou Xiaochuan, the central bank's issuance of digital currency mainly reflects the following principles: First, it provides convenience and security. Second, as mentioned above, it strikes a balance between protecting privacy and maintaining social order and combating illegal and criminal activities, especially for crimes such as money laundering and terrorism. It is necessary to retain necessary containment measures. Third, it is conducive to the effective operation and transmission of monetary policy. Fourth, it is necessary to retain control over monetary sovereignty. Digital currency is freely convertible and controllably convertible.

Here, I will introduce a new term, called digital currency. I define digital currency as digital legal tender and digital "illegal" currency. Please note that there is a legal concept here that readers need to understand. The inherent meaning of "illegal" in Chinese law is: it is not recognized by the law, but the law can't do anything to you. I will bring up the concept of "illegal cohabitation", and you should understand it thoroughly. Hehe, the laws of the continental legal system are so naughty. This is the advantage of fuzzy culture, but it also makes people crazy.

Zhou Xiaochuan also said in response to questions from Caixin reporters that the digital currency generation mechanism and money supply need to be adjusted. 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 convenience. Overall, the central bank will fully consider the existing monetary policy regulation, money supply and creation mechanism, and monetary policy transmission channels when designing digital currency.

The eighth interpretation: The issuance of digital currency still follows the two-dimensional principle.

At present, the issuance and withdrawal of cash are based on the current binary system of "central bank-commercial banking institutions". The issuance and operation of digital currency should still be based on this binary system, but the transportation and custody of currency have changed: the transportation method has changed from physical transportation to electronic transmission; the storage method has changed from the central bank's issuance library and the banking institution's business library to the cloud computing space for storing digital currency. Ultimately, the security and efficiency of digital currency issuance and withdrawal will be greatly improved. In a sense, the issuance of central bank digital currency means that the "money helicopter" mentioned in a report by HSBC will become a reality.

Ninth interpretation: Digital currencies that are not anti-counterfeit have bugs

We know that the anti-counterfeiting education of paper money has been carried out for many years, and basically consumers can master some skills. However, counterfeit banknotes still enter the market every year, posing a threat to the currency issuance system. The anti-counterfeiting technology of digital currency comes from a variety of financial technology technologies such as cryptographic algorithms. The author believes that the underlying blockchain technology is the preferred choice for legal tender digital currency. Governor Zhou believes that blockchain is not the only choice, and is worried about its transaction capacity. The technical route of digital currency can be divided into two types: account-based and non-account-based, and can also be used in layers to try to coexist. Blockchain technology is an optional technology, which is characterized by distributed bookkeeping, non-account-based, and cannot be tampered with. If digital currency focuses on protecting personal privacy, blockchain technology can be used. As China's second largest economy, currency issuance is one of the country's most important strategies, which requires multi-faceted technical architecture support. Blockchain is not the only choice, but it cannot be chosen. At least, from the current "discovery", blockchain is of absolute value in terms of account traceability and privacy protection. The author believes that the digital currency research team of the People's Bank of China must have reached a similar conclusion. The issuance of digital currency by a country is absolutely a big deal. It is indeed risky to leave its fate to an infrastructure technology, and at least from a psychological perspective, it is irrational. I strongly support Governor Zhou’s foresight.

Author: Chen Gang, a financial expert. Founder and managing director of Gaoronghui Capital. Consultant to many startups.