Oriental IC diagram
The current situation in digital currency
1983, David Chom put forward the eCash (electronic cash) system, 1998, David put forward the b-money(B currency), which formed the earliest digital currency system in the world. With the birth and hot speculation of Bitcoin in early 2009, digital currency gradually entered the public eye.
In recent years, digital currency has developed vigorously, and projects such as dogecoin, Yuanbao Coin, Ethereum, IOTA, Cosmos and Libra have appeared one after another, while a number of large traditional financial institutions have also launched digital currency, such as SETLcoin of Goldman Sachs and JPMCoin of JPMorgan Chase. So far, there are more than 2,000 kinds of digital currency in the market.
While these super-sovereign digital currency are booming, digital currency, a central bank with legal status and endorsed by national sovereignty, has also emerged, and central banks all over the world are stepping up the layout and development of sovereign digital currency. According to the survey of 66 central banks, more than 80% national central banks are exploring sovereign digital currency, especially the world's major currencies, such as the US dollar, the euro, the Japanese yen, the British pound and the RMB, which have been at the forefront of exploration in various countries.
With the spread of COVID-19 epidemic around the world, digital economy and digital technology are booming against the trend, and all major countries in the world seize the opportunity to rapidly develop their own sovereign digital currency.
For example, "Digital Dollar" was included in the latest fiscal stimulus bill in the United States, and the digital payment business of Mo Wen Company in the United States increased by 52% compared with last year; Russian proposal to establish the digital currency Plan anchored by gold; The French central bank completed the first digital euro test in May; The Bank of Japan put its chief economist in charge of studying digital currency in July; Three countries, including Ecuador, Ukraine and Uruguay, have completed the pilot of retail central bank in digital currency, and six countries and organizations, including Bahamas, Cambodia, China, Eastern Caribbean Monetary Union, South Korea and Sweden, are conducting the pilot of retail central bank in digital currency.
At present, traditional banks only account for 72% of the market value of global banks and payment stocks, which is lower than 96% in 20 10.
Six characteristics
The first is the dual account structure. In the process of exploring sovereign digital currency, reliability is an important consideration. Therefore, in order to reduce the turbulence or uncertainty brought to the current monetary system, most central banks' digital currency plans have maintained a dual account structure from central banks to commercial banks. In this way, the central bank can basically retain strict control over currency issuance and transaction processing, including the ability to change and reverse transactions. In addition, the dual account structure also continues the existing customer service model, which is not only easier to combine with the existing laws, but also easier to be accepted by the public.
Followed by multi-technology path parallelism. Digital currency, like other emerging technologies, does not have a single feasible technological path, so different countries have adopted different technological methods in their exploration. For example, in the infrastructure construction in digital currency, blockchain encryption technology and traditional encryption technology are used respectively. In terms of access methods, due to regulatory considerations, anonymous access based entirely on tokens is not popular, and account-based access is relatively common, but there are also ways in which the central bank uses account tokens.
Third, the infrastructure configuration is high. In view of digital currency's great potential, uncertainty and importance, the central bank, the country developing digital currency, attaches great importance to building a good infrastructure with toughness, security, high performance and potential, so as to carry a huge user scale, ensure security and have certain flexibility to meet the current demand and the expansion of future demand.
Fourth, the impact on monetary policy is limited. As digital currency has been launched for a short time, there is no definite answer as to whether the central bank's retail business in digital currency will have a significant impact on the host country's monetary policy. However, on the whole, the issuance of digital currency will not change the credibility of the central bank, cover up the dominant position of finance and other factors that affect the value of money, so the impact on a country's monetary policy will not be great at present, but countries are also cautious in the promotion process.
Fifth, strengthen international cooperation. Although central banks' digital currency plans are currently used at home, western developed countries have started international consultations on their standards and rules. For example, the Bank for National Settlements has established the digital currency R&D Working Group with six central banks in Canada, Britain, Japan, Sweden, Switzerland and the European Union. The World Economic Forum initiated the creation of the "Central Bank digital currency Policymakers Toolkit"; The G7 Summit also listed digital currency as a fixed topic.
Sixth, it is not easy to change the international monetary system. The establishment of the international monetary system and the competition between currencies are essentially the competition of national comprehensive strength, political and economic environment and national credit. Relying only on a new technology is unlikely to shake the dominant position of the dollar in the short to medium term. With its advantages in technology, financial ability and comprehensive national strength, the United States will still occupy a leading position in digital currency's future competition field, especially after the American regulatory authorities "incorporate" Facebook's Libra, which will enhance its competitiveness.
Risks and challenges
First of all, public participation is not active. For young people, digital currency is very popular because of its convenience. However, the elderly are not familiar with digital currency and the smart phones they rely on, so it is difficult to learn and apply. According to statistics, the usage rate of smart phones in the United States is only about 75%, and it is even lower in Europe. In addition, the new concept represented by digital currency is not accepted by everyone. At present, European society as a whole is conservative, and it is relatively exclusive to digital economy and digital society. It is not difficult to promote and train people to use digital currency.
Secondly, the boundaries between public and private power are blurred. Compared with the high degree of anonymity, confidentiality and freedom when using cash, the high degree of centralization and traceability in digital currency will strengthen the ability of the state or regulatory agencies to grasp people's data and information subjectively and objectively. According to media reports, the CIA, an American intelligence agency, tried to use digital currency and electronic transactions to collect not only the information of its own people, but also the information of users in other countries, which aroused widespread concern in the international community.
Third, the legal supervision is insufficient. At present, laws and regulations on financial activities are not fully applicable to digital currency. The legislative process of law is not only long, but also lagging behind, which needs to be gradually improved in practice. In the case that the legal system has not been fully established, how to ensure the security and controllability of digital currency has become a big challenge, especially as currency is the foundation and blood of economic activities, and it is extremely urgent to enhance the predictability of legislative work in related fields. In addition, the excessive legislation in some countries has seriously restricted digital currency's effective exploration and become the chief culprit of its development.
Fourth, it brings security risks to the financial system. Digital currency's issuance is very simple, which may further worsen the inflation level in some countries with loose fiscal discipline, thus threatening the security of the financial system. In addition, in the event of a financial crisis, digital currency is most likely to be sold in large quantities, increasing the risk of bank runs and undermining financial stability. Since the central bank can issue digital currency directly to individuals, the two entities can complete the transaction without going through commercial banks, and the risk of disintermediation cannot be ignored. Finally, digital currency may crowd out bank deposits and partially erode bank credit channels.
Fifth, there is a risk of fragmentation in the global financial system. Although countries are also strengthening international coordination in digital currency, at present, there are different laws and regulations in terms of technical standards, privacy protection and data circulation. This reflects the differences in economic strength and values among countries, and is also the result of comprehensive consideration of their own monetary sovereignty, financial sovereignty and even national security. The division of digital currency will accelerate the already unstable international financial system, and fragmentation will not be ruled out in the future.
Sixth, data security is worrying. The use of digital currency relies heavily on data, and the security of the data itself is widely questioned. Especially in recent years, data leakage, hacker attacks and malicious trading of customer data have occurred frequently, which has aggravated people's concerns. In addition, data storage is also facing challenges. Although storage devices are usually located in professional places of central banks or large data platforms, and there are usually backups, even so, how to protect data is still an important issue under extreme challenges such as war or disaster.
Seventh, impact traditional financial institutions. With the rise of digital currency, a large number of financial technology companies have poured into this lucrative field. However, due to backward information technology, already low loan interest rate, expensive compliance cost and other factors, traditional lending institutions will face more intense competition. Financial technology giants skillfully combine finance and technology to reduce costs and control risks, thus transferring low returns and high risks to traditional institutions.
Enlightenment and suggestions
It is necessary to strengthen supervision, define boundaries, legislate in a forward-looking way, and improve relevant systems, so as to regulate the behavior of issuers and protect the rights and interests of users and investors. In the process of legislation, specific areas can be selected as pilots, local regulations can be issued, special licenses can be issued, and what can and cannot be done can be continuously explored. In legislation, due diligence, identity verification and transaction tracking should be adopted to leave policy space for cracking down on long-standing problems such as money laundering and illegal fund-raising, so as to give full play to digital currency's advantages. In particular, we should pay attention to the protection of privacy and personal data security. Legislation should not be too dead, leaving room for the subsequent development of business.
Because of its transparency and traceability, the sovereign digital currency of the central bank can provide a more intuitive and objective perspective for the government to observe the operation of the national economy, thus providing an important basis for scientific governance. In addition, digital currency, the central bank, supports smart contracts. If properly used, it can strengthen the leverage of monetary policy, including the central bank setting negative nominal interest rates and creating currencies with time constraints or other spending conditions, thus more accurately intervening in the national economy and amplifying the influence of monetary policy.
In addition, the author believes that strengthening international financial cooperation is also very important. First, promote the construction of infrastructure such as RMB cross-border payment system, especially in line with China's free trade and development zone strategy. After various conditions are gradually mature, the central bank will conduct cross-border settlement experiments in digital currency; Second, actively carry out bilateral and multilateral cooperation between countries, strive to speed up the internationalization of RMB, and try to establish a payment and settlement system with digital currency as the core. By actively participating in the formulation of international standards, we are committed to establishing standardized, unified and mutually beneficial international norms, thus ensuring the stability and order of the international financial system in the digital currency era. However, it is also necessary to prevent individual countries from monopolizing rules and discourse rights, further strengthen their financial hegemony, and prevent them from arbitrarily using financial means to sanction other countries.
Digital currency, the sovereignty of the central bank, is a new thing both at home and abroad. Especially when people accept a brand-new currency model and gradually replace the paper money that has been used for hundreds of years, it will inevitably lead to distrust and resistance, and there will also be many technical problems in the use process. In view of this, it is necessary to carry out extensive publicity and popularization activities, vividly, comprehensively and objectively introduce all aspects of the central bank's digital currency, help the people to increase trust and dispel doubts, clear the obstacles ahead of time, and lay a good foundation for comprehensive promotion in the future.
We should give full play to the unique advantages of the government, enterprises, universities, associations and other subjects, mobilize all positive factors, attract talents from all sides, create an innovative and friendly policy and social atmosphere, and work together to form a joint force to explore sovereign digital currency. In the process of exploration, we should be proactive and establish boundaries and bottom lines. We should not only pursue profits unprincipled, but also pay attention to morality and social customs on the basis of abiding by the law and effectively serve users. In addition, academic research should be actively carried out to explore digital currency's influence on monetary theory, legal tender mechanism, pricing theory, corporate governance and other theories and practices.
(The author is an MBA from China University of Political Science and Law)