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Former President of ICBC: Digital currencies should be issued by the People's Bank of China

via:第一财经日报     time:2017/12/1 8:31:56     readed:129

Yan Yang Qinglin pure

The significance of the existence of money is to make all kinds of transactions such as goods and services more convenient and to benefit the entire economic activity. From this point of view, the current sharp rise in the price of digital currencies is precisely where the problem lies]

[China seems to still choose the wholesale model in the first step of the digital legal tender without the need to subvert the current monetary circulation system and the monetary policy formulation and transmission framework. This approach may be more risk-controllable, the operation will be more stable, but also can mobilize the enthusiasm of commercial banks to share costs]

As of Beijing time at 15:00 on November 30, a Bitcoin price of 9,952 US dollars.

It is undeniable that the current surge in bitcoin is linked to its deflationary attributes, the proliferation of global liquidity after the crisis, the fanatics of international speculators and even its use as a money laundering and terrorist financing instrument. How to interpret Bitcoin prices soaring and huge fluctuations? How to understand the potential impact of Bitcoin and other private digital currencies on the global monetary and financial system?

At the same time, the latest and most important discussions in the field of digital money have turned to the so-called Digital Legal Currency (DFC or CBDC), the digital legal tender. In the face of the rise of private digital currencies, is the timing behind the issuance of the "digital law currency" by the central banks of sovereign countries ripe? "Digital Law" issue should follow what points? Is it possible for China to lead the world in this area? If China is the first to issue digital law currency, what principles and considerations should be adhered to? This will give the financial ecology what kind of impact?

In response to this series of issues, CBN recently had an exclusive interview with Yang Kaisheng, the specially appointed consultant of China Banking Regulatory Commission and former president of Industrial and Commercial Bank of China. Yang Kai-sheng does not agree with China's view that intensifying regulation "will overwhelm the centrality of global digital currency to others." He believes that indulgence, often at the cost of last-minute overcorrection, inevitably has to delay the pace of innovation and curb digital currency technology improvement.

Regarding the price volatility of Bitcoin, Yang Kaisheng said that the price increase does not mean that the market has matured, nor can it be regarded as a sign of the success of a digital currency. The significance of the existence of money is to make all kinds of transactions such as goods and services more convenient and benefit the entire economic activity. From this point of view, the current sharp rise in the price of digital currencies may well be its problem.

Looking to the future, Yang Kaisheng is still optimistic about China's lead in issuing digital legal currency. In his view, the digital legal currency in China should be in the form of currency adopted by the People's Bank of China to adopt specific digital technologies, as an alternative to paper currency, or Is a new electronic payment tool. In particular, he stressed that digital law currency must have the highest security requirements; in addition, the digital law currency should achieve a better balance between security and privacy protection.

When asked about the issuance pattern of digital legal currency in China, Yang Kai-sheng is optimistic about the wholesale model whereby the central bank issues digital currency to the public through commercial banks. He also admitted that the issuance of digital legal currency may exacerbate competition within the commercial banking system, leading to profound changes in the relationship between commercial banks and customers, and more personalized scene-based services will further become the key to competition among commercial banks.

1. Bitcoin price surge analysis

First Financial: Due to the sudden emergence of digitally encrypted digital currencies such as bitcoin, digital currency has become the focus of public opinion in these two years. We note that most media coverage has focused on the rise and fall of digital currencies such as bitcoin. Things are indeed beyond the imagination of many people, at present, the global market value of virtual currency market has nearly 200 billion US dollars, the price of bitcoin has also risen more than 10 times in the past 12 months. What exactly should we think of bitcoin's price performance and the rapid development of the global digital money market?

Yang Kaisheng: The views on this issue are not the same, and we can even say that the difference is great. For example, the Chicago Mercantile Exchange is said to have announced that it is going to engage in Bitcoin futures. This shows that they do not seem to see Bitcoin as something that could give financial markets much risk. However, there are also opposite attitudes. Some well-known foreign economists (such as Schiller) and financial leaders (such as Dimon) compare bitcoin and the "tulip bubble." Their basic view is that just as investors were chasing tulips and causing their prices to rise wildly, if the price of an asset rises sharply over time, the direct cause must have been a substantial increase relative to the demand for supplies, and bitcoin is no exception. Others are even more sharp-minded. For example, David CIO of DBS simply said: "We think bitcoin is a Ponzi scheme."

I do not think it is a problem that the price of bitcoin should fluctuate as it is not a real currency. Price increases, does not mean that it is legal currency, the price fell, it can not prove that it is a bad thing. However, if its prices continue to explode and plummet, it may prompt people to seriously consider the question of whether such price volatility can be used as a currency.

The fact is that this round of global low interest rate policy has been going on for too long. After the crisis, the central banks of major developed countries introduced unconventional monetary policies such as quantitative easing, which led to the proliferation of liquidity and widespread worries about currency devaluation. Under such circumstances, it is not surprising that a phenomenon known as total issuance (implying no devaluation) and a "currency" supported by the latest technology blockchain, implying a representation of the future. At the same time, due to bitcoin mining mechanism, as well as the depth of the market is far less than the pursuit of investors is bound to bring the price soared.

However, as some economists and many participants in financial markets point out, the soaring price of digital currencies such as Bitcoin does not justify its intrinsic value, and its price performance is not determined by its value . Therefore, due to changes in regulatory policies, changes in investor sentiment and other troubles, bitcoin will suddenly and again and again and again plummeted. What we need to focus on is what kind of impact it may have on social life and economic performance if this becomes a norm. What needs to be pointed out is that from the three basic functions of currency, namely denomination units, exchange media and value storage means, how can both of these three functions have the same function if Bitcoin really wants to be a currency. There are also people who ask questions about the global circulation of Bitcoin if it becomes a currency due to the established circulation. At that time, "the world will fall into disaster," is alarmist or prescient?

Therefore, let us not discuss economics principles and jurisprudence at a minimum. At the very least, it should be said that the current rise in the digital currency does not mean that this "new thing" has matured. The actual situation may be the opposite. The development of digital currency is still at a very early stage. What should be done now is how to study, explore and grasp this both in theory and operationally, not only from the operation of economy and finance, but also from the political and social stability problem. In this process, we need to make it clear that why some so-called digital currencies are easily used by some people to evade regulation. Such as ICO was once popular, apparently to avoidSecuritiesRegulatory supervision, the direct result of this market there have been a lot of fraud and criminal behavior. Another example is the realization of cross-border payments through bitcoin, which can not be denied that it has an impact on foreign exchange administration. In addition, why is the virtual currency such as bitcoin easier to be a medium of exchange for some of the criminal acts on the Internet "dark net" than legal tender? How can we control and prevent such digital currencies from being used as payment and trading instruments in money laundering and even terrorist financing? So, I think I need to be careful not to turn a blind eye to those already visible "gray rhinos." If we say that the current "Internet", "digitization" and "blockchain" include "digital finance", "digital currency" and so on, or "rare animals," we need special protection. Protection needs more attention.

First Financial: From this perspective, the Chinese regulatory authorities stopped a full stoppage of the ICO in September this year, noting that ICO was involved in illegal sale of counterfeit notes, illegal issuance of securities, illegal fund raising, financial fraud and pyramid selling, and shut down Digital currency exchange, to a great extent to limit the trading activities, it should be said that it is timely and correct. However, there are also some people who think that the move by the regulatory authorities in China may result in missed opportunities. As a result, they may overwhelm other people with the central position of the global digital currency. What do you think about this?

Yang Kai-sheng: I do not agree with this statement. As far as I know, relevant regulatory authorities in China have started to study digital currency earlier. In the PBC Digital Currency Seminar at the beginning of 2016, relevant parties made a clear statement of the future of digital currency development. The Central Bank has also set up a special institute for digital currencies, concentrating a group of professionals specializing in digital currency research. This is obviously aiming to create a leading position in the global digital money field. Regulators such as China Banking Regulatory Commission also pay great attention to tracking the development trend of digital currencies.

I think some of the current regulatory measures are not to deny digital money, not to deny the related technology, but to manage the financial chaos that it has triggered and to guard against any possible financial risks. I think this just shows that China's regulatory authorities understand the digital currency is quite profound. At the expense of deregulating or even deregulating in exchange for so-called development and short-term market prosperity, the costs must lie in the constant accumulation of risk and may even lead to systemic crises. Indulgence can often come at the cost of the last overkill, but in the end it must necessarily delay the pace of innovation and curb the progress of digital currency technology. There are quite a few lessons in this area that deserve to be learned very well.

First Finance: But a phenomenon of concern is the digital currency, such as bitcoin, which is still rising sharply after the announcement of the relevant regulatory measures in China.

Yang Kaisheng: As I said earlier, for the current digital currency, the price increase does not mean the market has matured, nor should it be regarded as a sign of the success of a digital currency. The significance of the existence of money is for the holder to earn money because it holds it? The currency is to make all kinds of transactions such as goods and services more convenient and benefit the entire economic activity. From this point of view, the current sharp rise in the price of digital currencies may well be its problem. Take virtual currency investors who have now made money, and today's rally may be just the prelude to the next big drop. Investors can make money, and continue to make money, of course, are happy things, but the world is there any kind of investment is only profitable and profiteering, but not at risk?

2. How to define "digital legal tender"

First Financial Group: At present, the latest and most important discussions in the field of digital money are beginning to shift to the so-called digital legal currency, which is the digital legal tender. What is the biggest difference between digital and private digital currencies?

Yang Kai Sheng: Currently there seems to be no authoritative definition of digital legal currency. With reference to the characteristics of legal and digital currencies, I think the digital legal tender should have the following characteristics: a sovereign endorsement, issued by the central bank, with the function of a denomination unit, a trading medium, and value storage. At the same time, it uses the latest digital and encryption technology. Only digital currency with these characteristics can become a real legal tender.

The function of money is to make the transaction more convenient, efficient and cost-effective. It should serve the operation of the real economy and the development of society. For a resident of a country, its currency should not be speculative.

Many people have also placed such a hope on digital legal currency that the so-called "smart issuance" can be achieved with the further development of technology. To give a simple example, some people think that intelligent distribution based on personal "smart use" can be realized. For example, money is placed on an electricity meter and can be automatically recharged when the balance is insufficient. Or, after driving through toll booths and satellite positioning, You can realize the application of deducting money directly through the smart contract. This and the current smart meter and traffic ETC card pre-charging principle is completely different from the central bank directly to the public issue digital currency. Of course, there are still many theoretical problems and practical problems. Now we can only say that it is a prospect. For policy, this is a way of conveying forward-looking monetary policy based on smart computing. In other words, the distribution system of digital legal tender should be smart and flexible, something that private digital currencies like Bitcoin do not have. Of course, the intellectualization of currency issue involves all aspects, the possibility of short-term realization seems to be not large, but also need long-term exploration.

In addition, the digital legal and private digital currencies in terms of security management, at least for now, there are still a lot of differences. It should be admitted that there is a certain security risk in the current private digital currency. Cases of being attacked by hackers have also occurred. This is unimaginable when it comes to digital legal currencies. Digital law currency is bound to have the highest security requirements, otherwise not only the reputation of monetary authorities and the entire government will suffer immeasurable loss, more importantly, the economic and financial operations of the whole society, and even political life may fall into a confusion. In addition, digital money should also pay close attention to the issue of privacy. Therefore, a better balance between security and privacy protection should be applied in the process of digital legal tender issuance, use and management than in private digital currency "More advantageous place.

First Financial: For policymakers around the world's central banks, one may ask one question: why should we issue digital currency? In addition to some of the smart applications just mentioned, what are some of the current monetary and payment systems in digital currency? It is not just because of the emergence of private digital currency challenges, the central bank accelerated the pace of progress in this regard.

Yang Kai Sheng: You judge this is right. You always like to use the word "digital law", I always feel a little uncomfortable listening, so simple is concise, in fact, I think called "digital legal tender" more accurate, of course, a little bit winded. As for the benefits of issuing digitized legal tender, first and foremost, the digital legal tender, once it is used, will help to drastically reduce the cost of using cash worldwide. Data show that the current global cash transactions reached 75 trillion US dollars each year, 85% of global consumers use cash payments, the global cash costs (including printing, distribution, transportation, destruction, etc.) is said to account for 2% of global GDP %, Which means roughly one year of GDP in a country like Canada. This cost is considerable, which of course is a good thing if it can be saved. Of course, some people also put forward that the consumption of digital currency such as issuance, use, payment and liquidation is very high, which is also a huge cost. This may be solved by technological advances.

Second, different types of countries issue digital legal currency, will come from different considerations. In general, developing countries want digital money to help solve the problem of inclusive finance. According to the World Bank, due to a lack of basic financial services, some 2 billion people worldwide rely on cash for transactions, mostly in developing countries. Central banks in developed countries, such as the Bank of England, the Federal Reserve and the ECB, may be more interested in using digital currencies to optimize the implementation and transmission mechanism of monetary policy. After the global financial crisis, the effectiveness of the monetary transmission mechanism of central banks in developed countries is facing an unprecedented challenge. Monetary authorities in these countries hope to improve their understanding of the monetary system through digital currencies and make the transmission mechanism of monetary policy more transparent Effective, but also to solve the current series of practical problems arising from the existence of "negative interest rates." In addition, some countries such as Sweden, due to the "exclusion" of cash by the general public, have also increased the urgency of the issuance of digital currency by their central banks.

First Financial: So central bank issued digital law currency, the conditions are ripe for the moment?

Yang Kai Sheng: Whether the conditions are ripe depends mainly on the specific goals set. If the goal is a whole system of conversion, then I think the conditions are far from ripe. For a country, the transition from the traditional paper currency system to the digital currency system is a very large and systematic project, and there should be a long transition period in between. At the same time, the current complete replacement of digital currency digital currency technology is not yet mature, for example, we generally optimistic about the distributed ledger technology at this stage because of the slow processing speed and efficiency is too low, under the current technical conditions to use it to replace global real-time Full payment system is impossible. However, if the goal of action is only a small-scale attempt and ice-breaking, that should be possible. Only by trying to see the problem more clearly can we better adjust our policies and improve technology more effectively.

3. China is expected to be the first in the world to issue digital legal currency?

First Financial Group: At present, there is a call in the international discussion that China is more likely and should be the first to launch digital legal currency due to its leading position in electronic payment.

Yang Kai Sheng: I hope so. This is still an international comparison. Actually, from the domestic point of view, the digital legal currency should be the mainstream of all kinds of digital currencies in the future. In other words, perhaps the digital legal tender comes out and there is no such market for those virtual currencies that have such problems.

First Financial: China issued digital law currency, what principles should be insisted and considerations?

Yang Kaisheng: At this point, Governor Zhou Xiaochuan has long argued that the issuance, circulation and trading of digital currencies should follow the same idea of ​​integrating traditional and digital currencies and implement the same principles of management. Chinese digital legal currency is a currency form issued by the Central Bank using specific digital technologies. It is a substitute for banknotes and can be considered as a new electronic payment instrument. More importantly, in essence, it is still the debt that the Central Bank issues to the public and is supported by the value of state credit.

First Financial: How to choose technology route? Will use the current high-tech blockchain technology?

Yang Kai-sheng: In response to this, Governor Zhou Xiaochuan once said: Blockchain technology is an optional technology, but blockchain resources so far occupied too much, whether it is computing resources or storage resources, can not deal with now The scale of the transaction, the future can not be solved, but also look. This argument makes sense. In addition to the blockchain technology, it is understood that the People's Bank of China Digital Currency Research Team is also delving into other related technologies involved in digital currency, such as mobile payment, trusted and controlled cloud computing, cryptographic algorithms, security chips and more. For the digital currency controlled by the central bank, I think the central bank will certainly adopt a series of technical means, mechanism design and laws and regulations to ensure the security of the digital currency operating system. This from the very beginning seemed to be different from Bitcoin's design idea.

In addition, the experience of some other central banks is also worth learning. For example, the Bank of England's design concept is based on the systematic perspective of the central bank. It does not seek to implement a scalable central bank-controlled digital currency controlled by the central bank based on blockchain technology.

First Financial: Everyone concerned about the blockchain technology, in fact, is concerned about its distributed and decentralized arrangements. But for a digital legal currency, a decentralized architecture seems less viable, starting with security issues.

Yang Kai Sheng: Yes. Digital fiat currency must strike a balance between security and privacy protection in order to address the issues that may result from the un-traceability of accounts. It is necessary to ensure the safety of digital currency users through cryptographic algorithms, but also through the technical means to establish a controlled anonymous mechanism to achieve traceability under certain conditions. I think we can not simply regard the center as a symbol of backwardness and the so-called decentralization as the standard. The digital legal currency must be centralized or partially decentralized in order to guarantee efficiency and security, an issue that can be analyzed even in connection with national sovereignty. Digitized legal tender may be able to use blockchain technology in some areas, but should be tailored to the specific design. I have been a layman in this area of ​​technology and only read some materials. However, I feel that some experts' suggestions and ideas seem to make sense. For example, the flat network becomes a hierarchical structure, the public-owned chain becomes a coalition chain, the competitive-based accounting is cooperative accounting, and some key nodes are involved in the accounting system, and so on.

First Financial: The central bank to issue digital legal currency there is a problem, is the choice of wholesale digital legal currency, or retail digital legal currency?

Yang Kai Sheng: This is a very important issue. Many people now think that digital law currency can have two modes of operation: First, the Central Bank issues social currency directly to the public, which is probably what you call retail. Second, follow the traditional "Central Bank - Commercial Bank" dual mode, that is, wholesale. In the first mode, the central bank should directly face the entire society to provide legal digital currency issuance, circulation and maintenance services. The second mode is to still adopt the circulation mode of current banknotes issue, that is, the central bank issues digital currencies to commercial banks entrusted by the central bank to provide statutory digital currency deposit and loan services to the public and maintain the legal number with the central bank Currency issuance, the normal operation of the circulation system.

In my opinion, it seems that in the first step of digital legal tender, China should still choose the wholesale model without subverting the current monetary circulation system and the monetary policy formulation and transmission framework. Such an approach may be more risk-controllable operation will be relatively stable, but also can mobilize the enthusiasm of commercial banks, share of costs.

4. How digital currency affects the global monetary and financial system

First Financial: We believe that if the digital legal currency really landed, the passage of time will surely bring about all aspects of the entire monetary and financial system, far-reaching implications. How do you evaluate and treat these effects?

Yang Kaisheng: The issuance of the digital legal tender does have profound economic and social consequences, especially for the financial system. Of course, the short-term impact depends on exactly how the digital currency framework is designed, depending on the rhythm of digital currency promotion and the evolution of related technologies. From the characteristics of digital legal currency itself, its issuance will reduce the cost of the entire monetary system and enhance the efficiency of transactions, especially cross-border transactions. There should be no doubt about this.

From the point of view of the financial system, in response to the possible impact of the promotion of digital law currency, Fan Yifei, the vice president of the People's Bank of China, has also analyzed: first, the currency structure has changed and the monetary multiplier has increased; secondly, the demand for physical currency has been declining Thirdly, the measurability of the velocity of money has been raised and the basis of big data analysis on financial transactions has become more solid. Fourth, it is possible to reduce the negative impact of KYC (knowing your customers) and AML Money laundering) costs and improve regulatory efficiency. Fifth, to provide an efficient and shared financial environment to drive financial innovation.

At the same time, we should also recognize that digital law currency will trigger and accelerate financial disintermediation, and even influence and even remold the monetary policy framework and transmission mechanism. Of course, in the event of a financial panic and financial risk, it will also speed up its transmission and proliferation, thereby aggravating the impact on financial stability and financial security.

In a word, the issue of the digital legal tender should belong to the most important issue when it comes to the revolutionary changes brought about by the development of science and technology in the financial industry. Others, such as Internet credit, third-party payments, online wealth management, sales of various "treasure" products, etc., are far from subversive changes.

First Financial: So it seems that you also think that for financial institutions, especially banks, digital legal currency issue will form a big impact?

Yang Kaisheng: As I said just now, if the central bank issues digital money directly to the public, the most important cornerstone of banking may be shaken. If we follow the traditional dual mode of "Central Bank - Commercial Bank", the impact on the banking industry will be reduced, or even a new round of development opportunities. Because digital legal currency is a cash substitute, it also requires a corresponding professional agency service, and commercial banks still have their advantages. However, the issuance of digital law currency may exacerbate the competition within the commercial banking system, and the role of banks in expiration of conversion deadlines will also be weakened. At the same time, the link between the legal digital currency and traditional accounts may be weakened, leading to profound changes in the relationships between commercial banks and customers. More personalized scene-based services will further become the key to competition among commercial banks.

First Financial: Many people understand digital currency as a technology-driven, in fact, as an important public policy choice, we should first analyze its economic significance and the economic and social impact of the policy, that is, we should pay attention to its institutional arrangements. What do you think should be considered in this area?

Yang Kai Sheng: Yes, I agree with your statement. Digital currency is not a purely technical innovation. It is first of all an economic and financial problem. Its economic significance and sociological significance should be analyzed in depth. The possible cost-benefit and change of the profit-sharing pattern of the introduction of relevant policies should be analyzed. For the specific institutional arrangement and design orientation, the validity of the monetary policy mentioned earlier is very important for the efficiency of economic support services, the implementation of AML / CFT and the balance of privacy and security. At the same time, digital currency is cross-border and policy coordination among countries is also indispensable. In this regard, international organizations such as the IMF and BIS should play their part and China should actively participate in efforts to guide the establishment of relevant processes and rules.

First Financial: There is a view that digital law currency will change the global monetary and financial system, change the dominant position of the United States dollar will also strengthen the international status of the renminbi. What do you think?

Yang Kai Sheng: This view is a certain truth. Large-scale use of the legal digital currency will make cross-border transactions more efficient, both for the government and the individual, and the increased demand for the legal digital currency over time may reduce the need for the current major reserve currency, the U.S. dollar. Frankly speaking, the current position of the U.S. dollar on the international financial market is not commensurate with the weight of the U.S. economy in the world economy. In fact, the current status of the U.S. dollar is too powerful. It not only poses such a problem to the rest of the world economy, but also affects the effectiveness of the Fed's monetary policy in the United States. Therefore, if the issuance of the digital legal tender in some large economies enables everyone to move toward a more diversified global monetary system, then it may be beneficial to build a community of human destinies. In the process, if the RMB take the first step, it is very meaningful.

(Reporter Zhou Yi-lin also contributed to this article)


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