Wang Yongli: The deep meaning behind the central bank's push for digital currency

The central bank's direct issuance of online digital currency means that the central bank will step into the online world and become a currency issuance and clearing center. This will completely change the current passive situation of the central bank basically not entering the field of Internet online finance, and will also greatly promote the development of online deposit accounts and Internet finance. However, it may also have a huge impact on offline traditional clearing and financial systems. How the new monetary system and the traditional monetary system, and the new financial system and the traditional financial system can smoothly transition is worthy of attention.

On the afternoon of January 20, 2016, the People's Bank of China held a seminar on digital currency in Beijing, and then released an announcement on its official website. The announcement pointed out: "With the development of information technology and the evolution of mobile Internet, terminal security storage, blockchain and other technologies, payment methods have undergone tremendous changes worldwide. The development of digital currency is bringing new opportunities and challenges to the central bank's currency issuance and monetary policy. The People's Bank of China attaches great importance to this." "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 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, "Strive to launch the digital currency issued by the central bank as soon as possible. The design of digital currency should be based on the principles of economy, convenience and security, and ensure the low cost and wide coverage of digital currency applications, achieve seamless connection between digital currency and other payment tools, and enhance the applicability and vitality of digital currency."

The central bank’s announcement that it will “strive to launch digital currency as soon as possible” is a major decision that will have a profound impact on currency issuance, monetary policy, payment and clearing, the financial landscape, and the development of Internet finance, and should attract high attention.

First of all, the "digital currency" mentioned by the central bank should not be the digitization of the currency in the existing monetary system, but a brand-new encrypted electronic currency system based on new Internet technologies, which means a major change in the monetary system.

In fact, as the settlement of funds in society has changed from being mainly based on physical currency (such as cash) to being mainly based on bookkeeping by clearing institutions, the form of currency has also changed from cash to more deposits (bookkeeping currency), and the proportion of cash in the total currency has continued to decrease. By the end of 2015, the balance of my country's broad money M2 was 139.23 trillion yuan, while the balance of cash in circulation M0 was only 6.32 trillion yuan. The proportion of banknotes that need to be printed and issued by the central bank in the total currency has been reduced to less than 5%.

Reducing the proportion of cash in the total amount of currency and reducing the issuance and circulation of cash are the common trend and inevitable trend of the world. Because cash not only has printing costs (special raw materials and encryption technology), but also takes up a lot of manpower and material resources in issuance, collection, counting (including identification), storage, recycling, destruction, etc. In addition, the transfer of physical cash often loses monitoring, and there are many loopholes and hidden dangers in anti-money laundering, anti-terrorism, anti-counterfeiting, anti-tax evasion, anti-commercial bribery, etc., which is completely inconsistent with the requirements of "green finance" development and financial supervision. Therefore, with the development of information technology and the innovation of clearing tools, strengthening the supervision of the use of cash, even stopping the circulation of cash, and vigorously promoting accounting and clearing and currency digitization have become the inevitable choice for the development of currencies in countries around the world.

The above-mentioned currency digitization is an improvement or modification under the existing monetary system, which greatly reduces the cost of currency issuance and circulation, effectively improves the efficiency of payment and settlement and the monitoring of capital flow, but it is not a revolution or subversion of the existing monetary system. It is certain that this kind of currency digitization (bookkeeping currency) is not the "digital currency" referred to by the central bank this time.

The digital currency that the central bank is going to launch should be a new monetary system based on new Internet technologies, and then a new encrypted digital currency. This will mean a major change in the monetary system!

Secondly, striving to launch the digital currency issued by the central bank as soon as possible will have far-reaching impact and great significance.

The People's Bank of China's public announcement that it will "strive to launch a digital currency issued by the central bank as soon as possible" can be said to be very radical and leading in the world. There are several key points to note:

The first is "the central bank issues digital currency."

So far, there is no "digital currency" issued by the central bank of any country in the world. The "digital currency" or "electronic currency" that people see now are all digital currencies launched by the private sector and used in a certain range. Basically, they cannot be protected by national sovereignty and cannot be freely circulated as currency.

Bitcoin, which appeared in early 2009, is a network digital currency developed and launched entirely by civilians using blockchain and other technologies. Over the past seven years, despite being controversial and basically not recognized by monetary authorities around the world, its security, transparency, traceability and other characteristics shown in its circulation process, especially its application of blockchain technology, have received more and more widespread and high attention around the world.

Blockchain technology is a new distributed network accounting technology that combines traditional encryption technology with Internet distributed technology. It focuses on the identity authentication of members of each set block, the confirmation of their value (assets) and transactions, and the continuous authentication and recording of value exchanges between members of different blocks, thereby forming a "blockchain" that connects blocks to each other. Through full-network encryption and distributed recording, it ensures the authenticity of transactions and the integrity of records, as well as the security of information and funds, and strictly prevents human intervention and fraud.

More and more people believe that blockchain technology uses new encryption authentication technology and decentralized mechanisms to maintain a complete, distributed, and tamper-proof chain ledger database, which allows participants in the blockchain to ensure the security of funds and information through a unified ledger system without the need to know each other and establish a trust relationship. This is of particular significance to financial institutions and financial innovation. By the end of 2015, more than dozens of the world's top financial institutions had begun to actively explore the application of blockchain technology at the financial level, and central banks such as the United Kingdom have also begun to pay close attention to blockchain technology and digital currency issues.

Of course, although blockchain was first applied to Bitcoin, as a technology, it is not equivalent to Bitcoin. Although Bitcoin particularly emphasizes "decentralization and de-sovereignty", it does not mean that blockchain technology can only be applied to decentralized and de-sovereignized currency design. Central banks can also use it to design and launch their own centralized digital currencies.

The second is to “strive to launch digital currency as soon as possible.”

With the development of the Internet, the cyber world is breaking through national and regional boundaries and becoming the focus of new rules and governance competition. The monetary system has a significant impact. The digital currency that will be used in the cyber world is entirely possible to break through the constraints of existing national currencies and become a unified currency widely circulated in the cyber world. Therefore, the control of the digital currency in the cyber world will also become the focus of competition among major countries.

The People's Bank of China took the lead in proposing to launch digital currency as soon as possible, which not only reflects its strategic considerations on digital currency in the cyber world, but also reflects the central bank's high attention to the urgency of this strategy.

Third, the construction and operation of the digital currency system have far-reaching impacts.

Digital currency is a currency under a brand-new monetary system built by applying new Internet technologies, which will inevitably have a profound impact on traditional currency issuance, monetary policy, clearing system, financial system, etc. The central bank's direct issuance of online digital currency means that the central bank will step into the online world and become a currency issuance and clearing center. This will completely change the current passive situation in which the central bank has basically not entered the field of online Internet finance, and will also greatly promote the development of online deposit accounts and Internet finance. However, it may also have a huge impact on offline traditional clearing and financial systems. How the new monetary system and the traditional monetary system, and the new financial system and the traditional financial system can smoothly transition is worthy of attention.