Liu Xiaochun: Discrimination and analysis of several issues of digital renminbi

In recent years, digital currency and blockchain technology have become popular, and 2021 will be a year of rapid development of digital renminbi. The data shows that as of October 22, 2021, the digital renminbi has opened 140 million personal wallets and 10 million corporate wallets, with a cumulative number of transactions reaching 150 million and a transaction volume close to 62 billion yuan.

What is a digital currency? What is its relationship with the current RMB currency system? What is digital currency technology? What are the similarities and differences between it and blockchain technology? Will Blockchain Technology Subvert Tradition? How does the application of digital renminbi promote cross-border payment and renminbi internationalization? Recently, Liu Xiaochun, deputy dean of the China Financial Research Institute of Shanghai Jiaotong University, was invited by SAIF Finance MBA professor to take everyone to re-examine the present and future of digital renminbi.

At present, my country has issued 140 million digital wallets under the digital renminbi. The digital renminbi has not yet been officially issued and is still in the pilot stage, but it has already obtained many application scenarios-more than 10 million application scenarios in the national pilot.

The just-concluded Winter Olympics is an important opportunity to pilot the digital renminbi, with about 400,000 specific scenarios. The International Olympic Committee signed an agreement with VISA to agree that payment for shopping at all Olympic venues must be paid through VISA channels except cash. But VISA did not raise any objections to the use of digital renminbi in the Winter Olympics. Why? This is mainly determined by the characteristics of the digital renminbi, and its use does not conflict with the agreement between VISA and the Olympic Committee.

The digital renminbi is essentially a type of renminbi, and it is a digital cash (we usually think of cash as banknotes and coins, and now there is another cash made with digital technology). Therefore, it does not conflict with the Olympic Games using VISA. If Alipay and WeChat are used in the Olympic Games, it will conflict with VISA, because VISA, like Alipay and WeChat, is an electronic payment channel.

To understand the cash attributes of digital renminbi, we need to analyze it from the following aspects: What kind of things can become currency?

First, about the issue of currency materials. There are shells, gold, silver, copper, iron, and paper in history, and now there are Arabic numerals on bank accounts—the electronic codes on accounts, which can actually be used as monetary materials. However, it takes an evolution process for coins to become currency. There is a law in this process, that is, when humans use shells, the currency is not managed, but a consensus naturally formed in the mutual commodity transactions between humans: a person who can buy other items Stuff is currency.

But when human beings enter the era of managed currency, they don't care what material the currency is made of. The key is whether the material is convenient to use, and has nothing to do with the value of the material itself. Therefore, now that bank books have moved away from paper and become electronic, monetary materials are actually not a problem.

Second, on the currency function. Traditional money and banking studies believe that money has four major functions, namely, value scale, means of payment, means of circulation, and means of storage. Sometimes it is also believed that money has the fifth largest function, that is, world currency, but not any country's currency can become a world currency. currency. In modern society, currency not only has five major functions, but also plays the role of capital or capital, that is, currency must generate benefits through currency activities.

Third, on monetary determinants. Is it true that an item must be currency if it assumes the functions of payment means, storage means, and circulation means? uncertain. Currency has 4 or 5 functions, but things that have these functions in turn are not necessarily currencies. For example, gold and silver can play the role of value storage means, they are a symbol of wealth, and they can also play a role in value transfer, but in the real world they no longer have the function of currency; another example is checks, promissory notes, and bills of exchange. Means of payment and means of payment, but they are not currency, but currency representatives; for example, antique works of art can play the role of value storage and value transfer, but they are not currency. In order to prove whether digital currency is currency, many people often prove whether digital currency can perform these functions, which is meaningless.

To sum up, currency is actually a consensus on credit, that is, everyone recognizes the item as a general equivalent, and it is currency. From the perspective of currency development history, the currency that is slowly formed in the process of natural exchange needs to have material actual value; but when the currency becomes the sovereign credit currency of the country, the material value is no longer important, and the currency itself needs to have its own virtual value , which is the credit behind it. Taking my country as an example, the currency of our country was managed by the state two or three thousand years ago. During the Spring and Autumn Period and the Warring States Period, all countries chose copper as the currency material, not only because of the value of copper, but also because the supply of copper in the country at that time could meet the needs of commodity transactions, while the supply of gold could not meet the market transaction volume in our country at that time. Therefore, in Chinese history, gold basically did not become a currency, but only a symbol of wealth, or only became a currency in a very short period of time and within a small range. Therefore, the monetary material itself does not need to be valuable, but there must be consensus and management. Whether the monetary material itself has value is not a problem. The value of the RMB does not lie in how much the paper is worth, but in the value of the paper stipulated by the People's Bank of China. The market only needs to recognize that it is worth the money.

The fundamental reason for the emergence of digital currency in the near future is the objective demand of economic exchanges. The development of the Internet economy has brought about the demand for online payment, and the development of network technology itself has provided technical conditions for the generation of digital currency. The development of digital technology will inevitably promote the generation of digital currency. From the perspective of the law of currency development, currency from the initial gold, silver, copper and iron to the current banknotes, including tokens other than banknotes, such as bills of exchange, promissory notes and other means of payment, are all in response to economic development and technological progress. And born. The current Internet era has entered a period of rapid development of the digital economy, and there has been a demand for digital payments, which has led to the concept of digital currency.

Here are two examples to illustrate how digital currency is generated:

The first example is Satoshi Nakamoto's Bitcoin. Before the birth of Bitcoin, Satoshi Nakamoto hoped to create a tool for convenient payment on the Internet due to the needs of the Internet economy, and to create a new currency for payment on the Internet. This creates a problem. If a new Internet currency is created, this currency is not issued by a legal institution, but is used spontaneously by the people. How can this currency reach a social consensus, that is, how can everyone trust this currency in transaction payments? currency. To this end, he has used a series of technical integrations, such as blockchain, distributed accounts, encrypted codes, etc., to make everyone undeniable and tamper-proof, and to build trust. After the integration of this set of technologies, the original one-to-one transaction has become an open transaction between two people, and all nodes in the entire network record it, thus generating mutual trust. There is no doubt that this is very inefficient, so after more than 10 years of technological progress, the payment efficiency of Bitcoin still cannot meet the requirements of modern commodity transactions. Therefore, although Bitcoin has been highly hyped so far, it has not become the Internet-facilitated payment currency originally envisioned by Satoshi Nakamoto, but has become a hyped digital asset.

The second example is Alipay. The starting point of Alipay is the same as that of Bitcoin. With the rapid development of Taobao, the transaction between buyers and sellers needs to be as convenient as possible, resulting in payment problems. Before the establishment of UnionPay, the bank cards of various banks could not settle with each other. Basically, each bank had one POS machine in the store, and a certain bank card could only be used on the POS machine of its own bank. In other words, if the store has 10 POS machines, it means that he has established bank card settlement methods with 10 banks. If the customer pays with the credit card of the 11th bank, the settlement cannot be made. Although the banks could technically open the interface to achieve Unicom at that time, the banks were unwilling to open the interface due to the competition between each other. As a result, when buying things on Taobao, if the buyer and seller’s bank cards are not in the same bank, the payment cannot be made. . In this case, Taobao was forced to create a payment channel to open up various bank accounts. This is third-party payment, that is, to build a payment channel as a third-party bridge between others, itself and the bank. But this also faces a problem of mutual trust. The seller is worried that he will not be able to collect the payment when he delivers the goods, and the buyer is worried that he will not be able to receive the goods when he pays. According to the characteristics of bank letter of credit settlement, Taobao requires the buyer to put the money into the Alipay account. When the buyer receives the goods and confirms that they are correct, Taobao then pays the money to the seller. This solves the trust problem between the buyer and the seller.

There is an essential difference between digital currency and third-party payment: one is a real currency, and the other is a tool that uses bank accounts for settlement. Although both are to solve online payment needs.

The emergence of digital currency has brought many confusing concepts.

First, can technology itself be used as currency, that is, what can become currency. Some people say that blockchain technology or digital currency technology has a series of benefits such as non-tamperable, traceable, and distributed accounting, so it can become a currency. But having these functions in a certain technology does not mean that having these functions is itself a currency. For example, the non-tamperable and traceable features are similar to issuing documents. There are red-headed unit names, document names, and document numbers and stamps on the documents. The purpose is to be credible, traceable, and non-tamperable; The purpose of stamping is also to prevent tampering. If there is a change in the account book, the changed place must be stamped again. This is for tamper-proof and traceability.

Distributed account is a technical concept, which means that information can be stored on different nodes at the same time, similar to backup, just like Sikuquanshu is stored in several major libraries across the country at the same time. Therefore, distributed accounts and bank accounting books are two concepts, and bank accounting books are books kept in accordance with accounting principles.

Second, in the current discussions about digital currency or financial technology, one of the benefits that is often emphasized is peer-to-peer, and peer-to-peer payment is everything about money and finance. But looking at the development of the financial system, peer-to-peer payment is not everything in finance. Many payments are not necessarily and need not be peer-to-peer payments. It is related to transaction rules and transaction objects. For example, it is impossible to pay for a house and deliver it at the same time, because both parties to the transaction have to go to the real estate management department to register and transfer. Only when the real estate certificate is obtained can the real estate transaction be completed, and point-to-point payment cannot be made before. This is actually similar to Alipay. Traders often need to use intermediaries, especially banks, to transfer authority to the intermediary, and then pay to the seller after all procedures are completed.

Third, regard the technology itself as a hype and investment target. Technology itself can be invested, but investment in technology is to invest in the development of this technology, and the application of technology cannot be invested until the application of products appears.

Fourth, technical tools and means may become tools for fraud and money laundering. Various countries are regulating digital assets. Although some countries have legalized digital asset transactions, they are all researching and introducing regulatory methods to prevent digital assets from becoming money laundering and fraudulent tools.

Fifth, about the concepts of stablecoins and tokens. Many experts believe that it is possible to issue stablecoins linked to the renminbi and the US dollar. But there is no need to issue it at present, because stable coins cannot be issued for the sake of issuing stable coins. The key is what kind of payment and settlement scenarios stable currency tokens can be applied to. Checks, promissory notes, meal tickets in the unit cafeteria, etc. are all stable coins or tokens, with specific application scenarios and rules; JPMorgan Chase Bank has developed JP Morgan Coin, which is a stable coin, which is actually a digital promissory note in terms of rules , but no application scenario has been found. If stablecoins are used for hype, they are inherently unstable. Although stablecoin tokens have currency value, they are not actually the currency itself, but only a currency representation. For example, Bitcoin has become an investment object, and it needs to be invested in currency. This also shows that Bitcoin is not a currency.

First, the digital renminbi is actually a type of cash. The People's Bank of China made it very clear that the digital renminbi is M0, which is the base currency, and intuitively speaking, it is cash. The digital renminbi does not issue another currency in addition to the renminbi, but in the entire concept of renminbi - renminbi with banknotes, renminbi with coins, renminbi with digital technology, and renminbi recorded in bank accounts or Credit currency, these currencies are equivalent to each other and seamlessly connected.

Now that the digital renminbi is M0, is it necessary to make M1 and M2 into digital currencies in the future? M0, M1, and M2 are different types of the entire currency circulation. M0 is the basic currency, which is the currency in circulation issued by the People's Bank of China. These currencies circulate in the society as soon as they are issued, and are not displayed in bank accounts. Such currencies have the strongest circulation. When you deposit M0 in the bank, it becomes a bank deposit. If it is a corporate current bank deposit, it becomes a part of M1. M1 includes M0 plus bank corporate current deposits, so M1 includes M0; M2 is M1 plus the corporate regular deposit on the bank account Deposits and personal savings deposits, so M2 contains M1. In essence, M1 and M2 do not exclude digital currencies, and it can also be said that M1 and M2 are both digital currencies.

Second, after the development of the modern economy, cash is basically only used for retail payments, and rarely used for payments between enterprises. Because it is too troublesome and too large, the so-called digital currency wholesale problem is actually a problem of the size of the payment amount. Similar to when banknotes were used in the past, the economic scale was small, wages were low, and prices were low, so the maximum denomination of RMB was 10 yuan. However, with the development of the economy, the increase in wages, and the rise in prices, it is obviously inconvenient for the maximum denomination to be only 10 yuan, so there is a currency with a denomination of 50 yuan, and later there is a currency with a denomination of 100 yuan. It is semi-wholesale.

Third, whether the digital renminbi is a weapon for the internationalization of the renminbi and breaking the hegemony of the US dollar. The internationalization of the RMB depends on the country's economic and political strength, as well as the stability of the currency management system, and also depends on the recognition of the RMB by countries around the world. The hegemony of the US dollar does not depend on the good printing of US dollar banknotes. The hegemony of the US dollar is supported by the economic strength, technological strength, political strength, and military strength of the United States. It does not rely on a certain technology. Technology is just a tool.

So far, there are many test scenarios for digital renminbi, with more than 10 million. China's digital renminbi technology is also unique - it can be paid without a network, that is, off-grid payment. In addition, through traceability, it is also possible to recover the fees paid.

Whether digital currency will be used for payment in many application scenarios in the future depends on the user's cognition and habits. Sometimes it has to do with technology, sometimes it has nothing to do with technology; sometimes it has to do with ease of use, and sometimes it has nothing to do with convenience and inconvenience. But what is certain is that digital currency will bring new demands, new transaction models, and new economic methods.

Digital currency plays a positive role in inclusive finance. The key to financial innovation lies in the innovation of finance itself, and technology is only a tool and plays a catalytic role. In inclusive finance, digital currency only plays a role in delivering money to inclusive objects more conveniently. As for how to serve inclusive objects, it depends on finance itself to innovate. For example, in the insurance industry, insurance needs to use insurance technology to create insurance products to serve inclusive objects. Digital currency itself is not an insurance product, but insurance products are accessed through digital currency, and compensation will be simpler.

Digital technology has promoted changes in the form or carrier of money, as well as changes in payment methods, but has not changed the function of money. The future currency forms and payment methods will still be diversified, and there will not be only one digital currency. Calculated by the number of business transactions, currently Alipay and WeChat Pay account for more than 90% of the total payment transactions, which means that less than 10% of the transactions belong to the bank; from the perspective of the amount, 90% are bank account transfer payments , while Alipay and WeChat Pay accounted for only about 6%. Therefore, digital currency cannot be the only payment method in the future.