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In 2016, China's economy and finance faced a more difficult and complex year. After the GDP growth rate broke 7%, the economic growth rate has yet to pick up under the structural reforms of de-capacity, de-stocking and deleveraging. The accumulated financial risks in the past few years are being released at an accelerated pace, from traditional bank non-performing loans to innovative large asset management and Internet finance, and risks are erupting at multiple points. In this context, how can monetary policy create a suitable monetary and financial environment for reform and growth? How can we build a macro-prudential policy framework to adapt to the new financial mixed business model and maintain the bottom line of no systemic and regional risks? The direction of the reform of the RMB exchange rate formation mechanism is unswerving, how can we strike the right rhythm and measure? With many questions to be answered, Caixin interviewed Zhou Xiaochuan after the National Branch Governors' Meeting of the Central Bank. In his office on the 9th floor of the Central Bank building outside Fuxingmen in Beijing, Zhou Xiaochuan made a detailed and pertinent analysis and responded humorously. The following is the fifth part of the interview: Caixin: On January 20, the People's Bank of China held a seminar on digital currency and proposed to launch a digital currency issued by the central bank as soon as possible. What are the considerations behind this? Zhou Xiaochuan: The central bank actually started researching digital currency a long time ago. From the trend of historical development, currency has always evolved along with technological progress and the development of economic activities. From the early physical currency and 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 establishment of a digital currency issuance and circulation system is very necessary for the construction of financial infrastructure and the promotion of economic quality, efficiency and upgrading. How to replace it? 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 selection. However, the anonymity of paper money was not originally designed, but there is no other technology that can guarantee 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. 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. In other words, a balance must be found between protecting privacy and combating illegal and criminal activities. The mastery of these two motivations and the balance between them also leads to different tendencies in technology selection.
Caixin: What are the central bank's plans for issuing and managing digital currencies? How is it different from the digital currencies that have emerged spontaneously in the current market? Zhou Xiaochuan: Currently, many countries in the world recognize the digital or electronic currency framework led by the central bank, which may be different from the private one. 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 retaining necessary containment measures for crimes such as money laundering and terrorism. 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 controllable. For this reason, we believe that digital currency must be issued by the central bank as legal tender. The issuance, circulation and trading of digital currency should follow the idea of integrating traditional currency with digital currency and implement the same principles of management.
Caixin: Is there a timetable for the launch of digital currency? Will it eventually replace paper money? Zhou Xiaochuan: We cannot say the timetable for digital currency yet. China has a large population and a large size. For example, changing a version of the RMB may take a few months for a small country, but it will take China about ten years. Therefore, digital currency and cash will be parallel and gradually replace each other for a long time. The transaction cost of cash will gradually increase in the later period. For example, in the past, banks counted a large number of coins and did not leave until they finished counting. There was no charge, but later they may need to charge. With the incentive mechanism, people will naturally use more digital currency, but the two will still coexist for a long time.
Caixin reporter: If digital currency is issued, is monetary policy still needed? How to implement it? Zhou Xiaochuan: We believe that the 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 give full consideration to the existing monetary policy regulation, money supply and creation mechanism, and monetary policy transmission channels when designing digital currency. At present, the issuance and withdrawal of cash is 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 issuance library of the central bank and the business library of banking institutions to the cloud computing space for storing digital currency. Ultimately, the security and efficiency of the issuance and withdrawal of digital currency will be greatly improved.
Caixin reporter: How to prevent digital currency from being counterfeited? How to avoid the security risks of the "51% attack" faced by Bitcoin? Zhou Xiaochuan: On the surface, the anti-counterfeiting of banknotes should be easy for consumers to master; on the inside, key technologies are important state secrets, and the same is true for the digital currency issued by the central bank. We will use a variety of information technology means, including cryptographic algorithms, to ensure the uncounterfeitability of digital currency. Future technologies will also be upgraded, and we will take technology upgrades into consideration in advance, introducing the concept of long-term evolution from the beginning. The "51% attack" issue that is much discussed outside is more about Bitcoin, which does not need a central bank. For digital currencies controlled by the central bank, a series of technical means, mechanism designs, and laws and regulations will be used to ensure the security of the digital currency operating system, which is different from the design concept of Bitcoin from the beginning.
Caixin reporter: Blockchain technology has been very popular recently. Will the central bank consider using blockchain technology for digital currency? Zhou Xiaochuan: The technical routes of digital currency can be divided into two types: account-based and non-account-based. They can also be used in layers and try to coexist. Blockchain technology is an optional technology, which is characterized by distributed bookkeeping, non-account-based, and tamper-proof. If digital currency emphasizes the protection of personal privacy, blockchain technology can be used. The People's Bank of China has deployed important forces to study and explore blockchain application technology, but so far blockchain still occupies too many resources, whether it is computing resources or storage resources, and cannot cope with the current transaction scale. Whether it can be solved in the future remains to be seen. In addition to blockchain technology, the People's Bank of China's digital currency research team has also conducted in-depth research on other related technologies involved in digital currency, such as mobile payment, trusted and controllable cloud computing, cryptographic algorithms, security chips, etc. We will cooperate with the financial and scientific communities to further increase the research and rational use of various new innovative technologies, optimize and improve the technical framework for the issuance and circulation of digital currency, and fully foresee, promptly respond to, and effectively resolve risks that may arise in the application and promotion. To this end, the People's Bank of China earnestly hopes that all relevant parties will strongly support and participate, achieve results, and make contributions. ■
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