It is estimated that in the next two to three years, 30% to 50% of currencies will be replaced by central bank digital currencies, basically realizing the nationwide promotion of central bank digital currencies.
From 2014 to now, the central bank’s digital currency research has been going on for six years. Now, its mystery is finally about to be officially unveiled.
On April 14, a photo of the central bank’s digital currency being tested internally in an Agricultural Bank of China account was exposed, causing heated discussion on the Internet. Subsequently, some media reported that Xiangcheng District in Suzhou is an important pilot area for the central bank’s digital currency (DC/EP). Since then, digital currency-related concept stocks have risen for three consecutive days.
On the evening of April 17, the Central Bank Digital Currency Research Institute issued its latest response to the internal testing of the central bank’s digital currency. The Central Bank's Digital Currency Research Institute stated that the current DC/EP information transmitted online is test content in the technology research and development process and does not mean that the digital renminbi has been officially issued. The current closed test of digital RMB will not affect the commercial operations of listed institutions, nor will it have any impact on the RMB issuance and circulation system, financial markets and social economy outside the test environment.
This also confirms from the side that the above photos are authentic. It is reported that the central bank’s digital currency has entered the internal testing stage, and Chengdu, Shenzhen, Xiongan New Area, and Suzhou will become the first batch of pilots. It is foreseeable that once the test is completed, it will gradually become popular.
News about central bank digital currency has been around for a long time, but this is the first time such intuitive information has been exposed. After the news of the central bank's digital currency pilot work emerged, it also triggered many discussions. CCTV also recently popularized some basic information about the central bank’s digital currency DC/EP in a program.
In general, as the digital form of legal tender, the central bank's digital currency can be regarded as the "digital form" of RMB banknotes. Digital currency has the advantages of low circulation costs, easy maintenance, anonymity but traceability, and the ability to conduct transactions offline.
It is estimated that in the next two to three years, 30% to 50% of currencies will be replaced by central bank digital currencies, basically realizing the nationwide promotion of central bank digital currencies.
Why issue digital currency?
When it comes to digital currency, some people may think of the various air coins issued by the "currency circle" that specializes in cutting leeks. However, in fact, the digital currency DC/EP issued by the central bank is essentially different from these air coins.
The full name of DC/EP is Digital Currency/Electronic Payment, which is digital currency and electronic payment. It has national credit and is equivalent to legal currency (my country's legal currency is RMB).
To understand the central bank’s first digital currency, we must first clarify three concepts, M0, M1 and M2.
M0: Generally refers to cash in circulation
M1: Generally includes M0 + demand deposits of each unit
M2: includes M1 + residents’ savings deposits + corporate time deposits + other corporate deposits + securities company customer deposits.
When we use WeChat and Alipay to pay, we need to bind our own bank card account to use it. This means that WeChat and Alipay belong to M1 or M2, while DC/EP has M0 attributes.
In terms of positioning, the central bank's digital currency (DECP) is a replacement for cash (M0) in circulation. Mu Changchun, director of the Central Bank's Digital Currency Research Institute, said that "its functional attributes are exactly the same as banknotes, but in a digital form" and "is a digital payment tool with valuable characteristics."
So, you may be wondering, since there are paper currencies, why does the central bank still issue digital currency? Because the latter has many characteristics that the former does not have.
First of all, digital currency circulates in digital form without the need for money printing and logistics, which saves the cost of RMB circulation. It is no longer limited to the restrictions of third-party payment institutions, and there are no hassles such as exchange rates and change.
Secondly, digital currency can achieve anonymous transactions similar to banknotes, and every mobile payment we use every day will leave traces on commercial banks and payment institutions.
In addition, although transactions can be made anonymously, when a large number or suspicious transactions occur, the source and whereabouts of these currencies can be traced and can be retrieved in the future, thus preventing money laundering, robbery, theft, etc. from occurring to a large extent, which is not possible with the use of banknotes.
At the same time, due to the different technologies used, the central bank’s digital currency can achieve dual offline transactions, and transactions can also be achieved even when offline in subways, airplanes, etc.
Based on the above reasons, the RMB is expected to circulate more widely in the future, and is very likely to be adopted and recognized by most countries in the world in the future. This is also the strategic significance of the central bank's digital currency. At the same time, the central bank’s digital currency has national credit endorsement and is a stable currency that surpasses all existing stable currencies.
In terms of usage, DC/EP does not need to be bound to a bank card, but it does require you to exchange your deposit for DC/EP in advance. Just like you withdraw part of the money from your bank card (becoming M0), but this part of the money becomes "invisible cash" DC/EP, this money will enter your digital wallet APP and has not been consumed at this time.
Judging from the screenshots of the Agricultural Bank of China's digital currency wallet leaked online, the main functions displayed are basically similar to the daily payment and management functions of bank electronic accounts. For example, in the Agricultural Bank of China's digital currency wallet, there are four commonly used functions: "scan QR code to pay", "remittance", "receipt and payment", and "touch".
The touch function enables offline payment, which will be very helpful in remote mountainous areas without network or underground garages with poor network.
In other words, for us ordinary people in our daily lives, apart from the advantages of offline payment, DC/EP is not much different from Alipay and WeChat payment. It is nothing more than whether we choose to open WeChat, Alipay, or your digital wallet when paying a bill. In other words, although the payment tools have changed and the functions have been added, the channels and scenarios have not changed. The most important thing is that although the popularity of Alipay or WeChat payment is already very high, there will always be merchants who don't like one of them. If a merchant refuses to accept the central bank's digital currency, it is equivalent to not accepting cash.
Is it a major benefit to the blockchain? rumor!
After the news of the central bank's digital currency pilot emerged, the "currency circle" that had been deserted for a long time ushered in a long-awaited hustle and bustle. On April 15, Huijin and Covid hit their daily limit at the opening; on April 16, Golden Crown, Zhongying Internet, and Hengjiu Technology opened at their daily limit.
As of around 11 o'clock this morning, nearly 16 stocks were trending higher.
As can be seen from the above table, Felix, Huijin, Zhongying Internet, Julong, Hailian Jinhui, and Guangdian Express all increased by more than 7%. In terms of individual stocks, 2,598 stocks rose, of which 150 stocks such as Modern Pharmaceuticals, Kangyuan Pharmaceuticals, and Yuhetian rose by more than 5%.
Not only that, Bitcoin, which has been bearish before, has also followed suit and risen in recent days, with the price once exceeding the $7,000 mark.
For a time, rumors such as "the central bank's digital currency can be interchanged with Bitcoin", "fiat currency can legally enter the currency circle", "DC/EP can be speculated" were rampant. Unfortunately, as mentioned in the article, the digital currency currently being piloted by the central bank is essentially a digital form of circulating legal currency, which is fundamentally different from so-called "digital currencies" such as Bitcoin.
Speculators who think about "speculating on currencies" may be disappointed, because the central bank's digital currency is the digital renminbi, which will only be exchanged 1:1 at banks and institutions, leaving no room for speculating on currencies.
Secondly, my country currently prohibits the exchange of legal currency for digital currencies such as Bitcoin. If DC/EP is officially used, not only will there be no exchange between DC/EP and Bitcoin, but the illegal exchange of Bitcoin will be easier to track due to the issuance of the central bank's digital currency.
Finally, there is currently no evidence that the central bank’s digital currency adopts the form of blockchain. Of course, DC/EP may draw on blockchain technology in aspects such as identity verification, public keys and keys, but it does not mean that DC/EP uses blockchain.
Therefore, whether it is the "currency circle" or the "chain circle", it currently has little to do with the central bank's digital currency.
How to treat this digital RMB rationally?
From a historical perspective, we have reason to believe that just like everything has a cycle of birth, development, and destruction, it is entirely possible that paper currency will disappear in the near future. From paper currency to digital currency, it is a general trend.
With the continuous development of 5G, Internet of Things, big data and other technologies, our lives will inevitably undergo major changes, and we will eventually accept a more digital life, including the digitization of currency.
In fact, it’s not just the central bank. On the other side of the world, the U.S. digital currency has also made new progress. Last Friday, the stablecoin project Libra launched by Facebook released version 2.0 of its white paper. This is the largest update since the release of the Libra white paper in June last year. It mainly made four key changes in response to the previous regulatory issues that had the greatest resistance, namely:
(1) In addition to the multi-currency stablecoin system, single-currency stablecoin support is added;
(2) Improve the security of the Libra payment system with a robust compliance framework;
(3) Abandon the future transition to a permissionless system while maintaining its main economic attributes;
(4) Build stronger protection measures into the design of Libra reserves.
Finally, as China's RMB internationalization process gradually accelerates, the issuance of DC/EP will help reshape the trade clearing and settlement system and promote the internationalization of RMB. Before the launch of the RMB Cross-border Payment System (CIPS), RMB cross-border clearing and settlement was highly dependent on the U.S. SWIFT system and CHIPS. However, the United States has launched several financial wars based on the SWIFT system and CHIPS system, so relying on foreign currency settlement systems will have fatal flaws. Driven by the digital wave, the formation of a new currency clearing network has become a historical requirement.
A recent report from the Bank for International Settlements (BIS) also highlighted that the current crisis gripping the world has brought attention to the need for a payment method that can take a wide range of threats into account. This is also an opportunity for the internationalization of the RMB.
Taken together, the issuance of digital currency by the central bank is an inevitable process that conforms to the needs of the times and history. As far as people's lives are concerned, it will not affect the stability of the existing financial system.
Maybe you are still full of questions now, but will it feel "really fragrant" the day you use it?
References:
1. "The "Digital RMB" is about to come out and counting money in your wallet will become a thing of the past", GeekPark
2. "The implementation of central bank digital currency is accelerating, what should we know?" 》, TMTpost Media
3. "There was a central bank digital currency before, but it was later included in the new infrastructure and blockchain stocks soared", Jiemian News
4. "Central Bank Digital Currency Concept Stocks Hit the Limit, Blockchain Development Speeds Up", Babbitt Information
5.〈It’s almost ready for internal testing. Is there anyone who still doesn’t understand the central bank’s digital currency? 〉, Black Cat Finance and Economics
