From currency digitization to digital currency: currency evolution in the digital age

When I was young, I listened to my father telling “The Story of Avanti”.

There is a story about “scent” and “sound of money”.

Avanti met Master Bayi eating chicken and said, “What a fragrant chicken!”

Master Bayi said: “The smell of chicken is part of the chicken. You still have a cake on your hand, and the smell has gone into your cake. If you smell it, you have to pay me!”

Avanti took out the money bag, held it to Master Bayi’s ear and shook it vigorously, and asked, “Did you hear it? Did you hear the sound of money?” Bayi loved the sound of money clashing very much, and his face was full. Duixiao said: “I heard it, I heard it.”

Avanti said: “The sound of coins is part of the money. I paid for it when you heard it.”

With the advent of the mobile payment era, how long have you not heard the sound of coins colliding in your pocket? Do you still have a wallet and banknotes in your clothes or handbag? How long have you not seen the appearance of banknotes?

I used to get on the bus and heard the crisp “clam” when a coin was put into the ballot box. But now what I hear is the “ding” and “dingdong” sounds of mobile payment. If Avanti encounters Master Bai’s question now, how should he respond?

Currency, from the physical carrier of tangible cash to virtual electronic currency, such as bank electronic deposit, Alipay, WeChat payment, etc., the law and motivation of its development and evolution lies in: improving efficiency, reducing costs, and monitoring compliance . Compared with paper money, digital currency payment has low cost, strong portability and high efficiency. At the same time, printing costs are zero, and counterfeit banknotes can be avoided, which undoubtedly saves a lot of production resources and management costs for the country.

The “Double 12” in 2014 is a worthy milestone in the digitalization of currency. Since then, QR code payment has been promoted on a large scale offline, giving birth to the widespread development of cashless transactions. People gradually become familiar with mobile payment, and wallets have gradually become electronic wallets, integrated with mobile phones. Compared with Western countries, the Chinese people have surpassed the era of swiping cards and directly entered the era of swiping codes. Compared with carrying bank checks and credit cards, the operation of scanning code payment is simple, and only a smart phone is needed.

With the expansion of cashless payment methods and the development and improvement of blockchain technology, currency digitization is moving towards digital currency. In October 2020, the People’s Bank of China, in the “People’s Bank of China Law of the People’s Republic of China (Revised Draft for Solicitation of Comments)”, for the first time proposed that the renminbi includes physical and digital forms, which will provide legal protection for the issuance of legal digital currency. Currency digitization and digital currency are just digitization changed positions, from suffixes to prefixes, but they are not the same thing at all. The central bank’s digital currency is by no means only the digitization of legal currency, just as digital assets are not just as simple as the digitization of assets. So, what will the future digital currency look like?

Different from currency digitization, the biggest feature of digital currency is its own scene. When digital currency and blockchain technology are combined, they will be combined into scenes.

The original renminbi banknotes were impossible to stipulate: a certain banknote was only used in a fixed scene and designated by a designated person. But digital currency may be possible. We can target this digital currency to a designated account, and then design rules to formulate the use conditions and purposes of this currency.

For example, the relevant departments of the municipal government now issue relief funds to the relief recipients. The way is that the relief recipients apply according to the conditions, pass the level of approval and check, and finally get a relief payment. But when he gets the money, how he uses it is beyond supervision, he can squander it all at once, and even go to gambling. The digital currency can be used for specified purposes. The money can only be used to purchase daily necessities such as firewood, rice, oil, and salt. It can also be specified that the recipient can only be used in designated poverty alleviation supermarkets, or the amount and frequency of use in a month.

This is not a fantasy. The United Nations World Food Program (WFP) is serving nearly 10,000 refugees in Jordan through Building Blocks, a blockchain system based on Ethereum . Bernhard Kowatsch, the director of the innovation laboratory in charge of this project, said that the project eliminated 98% of bank transaction fees and saved them nearly $150,000 in prepaid card expenses. The money saved can be used to help more More people in need. More importantly, the digital account can avoid corruption caused by the fraudulent use of the refugee ID card after it was snatched by the local tribal leader. WFP can now also communicate directly with local retailers and use electronic transactions to obtain access to aid recipients to purchase food products.

We can imagine another scenario: Since the new crown epidemic, the economy has been greatly traumatized. The governments of Zhejiang, Jiangsu, Guangdong and other regions have issued consumer vouchers as an important way to stimulate consumption, expand domestic demand, and boost the economy. Nowadays, the issuance of consumer coupons is that people go to a certain bank or Internet platform to grab coupons in advance, and then deduct them for consumption. It often happens that the people who want to use the coupons do not grab the coupons, and the people who grab the coupons do not spend it. .

If you use the idea of ​​digital currency, you can change the “post-subsidy” to “pre-subsidy”, because digital consumer vouchers do not require printing and issuance costs, and can be put in every citizen’s electronic wallet, and then combined with existing consumer vouchers Similarly, stipulate the total amount of government consumer voucher subsidies within a time limit. In this way, everyone has consumer vouchers, and only the moment they use them will “pay and settle” . The background only needs to remind the public how much balance there is in the entire consumer vouchers subsidy pool. In the design of consumer vouchers, you can even specify the scene, which consumer vouchers are used to purchase supermarket items, which are for bulk consumption such as buying vehicles, and which are for entertainment consumption such as movie tickets or scenic spots.

If this idea can be realized, many application scenarios can be redesigned. When a government needs to use college student rental or transportation subsidies to attract fresh graduates to settle down, the original method is to come one, approve one, and send a sum; now, all eligible college students across the country can have an advance in their e-wallet accounts. Distribute a subsidy, set up a smart contract, as long as college students settle down, the subsidy can be triggered, and the payment can be received instantly. When the government wants to grant subsidies to specific personnel, it can also target monthly subsidies based on the database, and specify the purpose and period of use. When the government wants to encourage technological innovation in enterprises and design specific financial subsidy policies, it can also first give a digital currency to the designated account. As long as it meets the conditions, technology SMEs will not pass by the policy dividend.

If the brain is big enough, when renting a house, you can write a one-time deposit into the smart contract, and it will be automatically refunded in the original channel by means of digital currency when it expires. You don’t need to pay frequently when you go to the hospital, as long as you have electronic social security. If there is an amount on the card, you can directly deduct the payment with the electronic prescription; if you buy commercial medical insurance, you can automatically pay with the electronic medical record of the hospital; and so on, it will be realized in the future because the digital currency is a programmable currency. With the characteristics of smart contracts, it has strong expansion capabilities and can be deeply integrated with application scenarios. Compared with traditional currencies, this is the biggest value innovation.

As a hard currency, traditional currency can be exchanged for any commodity, with no restrictions on the occasion of use, but it does not carry information and cannot be traced back. When you hand over a 100-yuan banknote to the bank, you will find that you may not have the chance to see this numbered banknote again in your life, even if you go to the ATM next second to withdraw and get it It is also another banknote of the same denomination. In fact, you don’t know what the bank did with your money. In the era of digital currency, we can see that the control of digital currencies such as Bitcoin and Ether will not be transferred, as long as you hold the private key. Similarly, the digital currency endorsed by the national credit can carry information. In addition to the original functions such as bookkeeping, payment, and value storage, it can also realize the full data management of the currency’s entire life cycle. In other words, the central bank will have greater control over the creation, circulation, and withdrawal of currency.

There are also differences between digital currency and existing mobile payments: mobile payments must be connected to the network, and digital currency can still be used without the network. The data of digital currency will not be snooped by merchants, ensuring the safety and anonymity of users; at the same time, digital currency is equivalent to cash, and no transaction fees will be incurred. To make a less precise analogy, mobile payment (such as Alipay and WeChat) is a “wallet”; digital currency is a payment tool and the “money” in a “wallet”. After the digital currency is issued, we can still use WeChat and Alipay to pay, but the content in the “wallet” adds the digital currency of the People’s Bank of China.

In December 2020, following the first batch of closed tests in 5 regions including Shenzhen, Xiongan, Suzhou and Chengdu, China’s digital renminbi also added 6 new ones, including Shanghai, Changsha, Hainan, Qingdao, Dalian, and Xi’an. The second batch of pilot projects. The test content is mainly concentrated in the retail payment scenario, covering many areas such as living payment, catering services, transportation, shopping and consumption, and government services. The coexistence of multiple payment methods such as barcode payment and near-field payment can meet the current consumer demand for convenient and efficient payment.
After reading this, you may be worried, if you use digital currency, will you no longer be able to use banknotes in the future? In fact, no matter how advantageous digital currency is, it is only a supplement to the form of currency. It will coexist with the physical renminbi for a long time. However, it will be another key for us to enter the world of digital economy.

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