Huang Yiping: Are we really trying to challenge the US dollar by launching the digital renminbi quickly?

Our current digital currency is actually only a very preliminary first step. If the future develops into a complete central bank digital currency, there are unlimited possibilities.

Editor’s note: The global economic crisis, central bank currency oversupply, is an important turning point in the acceleration of digital currency development. At that time, many investors lost trust in the central bank and turned to decentralized Bitcoin . However, Bitcoin has no intrinsic value, and its supply is limited, and it cannot become a currency in the true sense. This is its natural defect. It was not until 2009 that Facebook released the cryptocurrency project ” Libra White Paper”, which accelerated the emphasis on digital currencies by central banks. The competition between digital currencies has become a new currency battlefield.

On July 16, the Central Bank released the “White Paper on the Progress of China’s Digital RMB R&D.” According to official data, as of August 20, the number of operating institutions for digital renminbi (e-CNY) wallets has expanded from the six state-owned commercial banks, WeChat, and Alipay to 35, covering joint stock banks, city commercial banks and some rural credit cooperatives. And Rural Commercial Bank.

According to a survey conducted by the Bank for International Settlements (BIS), most of the current research on central bank digital currencies (CBDC) in the world is still in the pilot experiment or proof-of-concept stage (about 60%), and only a few (about 14%) have actually entered the real world. Development and pilot work.

Huang Yiping, deputy dean of the National Development Institute of Peking University and director of the Peking University Digital Finance Research Center, recently said in a joint interview with the Chinese version of Barron Weekly and Julang Vision that digital currency is a new direction, whether it is the US dollar, the euro or the renminbi in the future. , Sovereign currencies in digital form will have an advantage in the new competition.

The progress of the digital renminbi is attracting worldwide attention. An important underlying reason is that the long-term global hegemony of the US dollar and the oversupply of the currency have caused the oversupply of liquidity to cause doubts in various countries. There is a view in the market that the central bank’s digital renminbi will challenge the dominance of the dollar. In this regard, Huang Yiping said that the digital renminbi is a small step in the long march of China’s renminbi internationalization. Now let’s talk about whether the digital renminbi can become an international currency in the future, whether it can become a wholesale currency, and whether it can be accepted internationally. It’s too early.

Huang Yiping is the deputy dean of the National Development Research Institute of Peking University and the director of the Peking University Digital Finance Research Center. He served as a member of the Monetary Policy Committee of the People’s Bank of China from June 2015 to June 2018. His main research fields are macroeconomic policies and financial reforms. He currently serves as the director of the Digital Finance Research Center of Peking University and the vice chairman of the Public Policy Research Center of the Counselor’s Office of the State Council. Served as chief economist of Citigroup Asia Pacific, and chief economist of Barclays Asian emerging market economy.

The following is the edited dialogue content:

Question: In the context of the global central bank release, why do central banks in various countries step up the issuance of digital currencies?

Huang Yiping: If you look at the background of the emergence of digital currencies, the birth of Bitcoin in 2009 was an important node. At that time, an important macro background was the global economic crisis.

At that time, many investors lost confidence in the central bank, believing that the central bank’s currency oversupply problem was very prominent. After losing trust in the central bank, the emergence of Bitcoin was welcomed by the market. On the one hand, everyone feels that the decentralization of Bitcoin has reduced the government’s ability to regulate the economy through monetary policy; on the other hand, Bitcoin has only a total supply of 21 million coins and will not be overissued.

But the flaw of Bitcoin is that it has no intrinsic value. It is neither gold nor silver, nor is it like a sovereign currency, which is backed by national credit. From the perspective of the central bank, monetary policy is an important tool for maintaining macroeconomic stability, and the amount of money needs to be adjusted. In addition, financial activities require supervision and are completely decentralized. Who is responsible for the control of anti-money laundering, anti-corruption, and cross-border capital flows? Therefore, as a currency, decentralization is impossible, which violates some basic definitions in modern monetary theory. So in the beginning, many countries did not pay attention to Bitcoin.

However, the People’s Bank of China is relatively advanced. Zhou Xiaochuan, the governor of the central bank at the time, has been paying attention to digital currencies since 2014 and has established a dedicated digital currency research group.

Banks around the world really began to study digital currencies seriously, after Facebook released the cryptocurrency project “Libra White Paper” on June 18, 2019. Then on December 1, Libra was renamed Diem .

Many people care about the stability of Facebook’s digital currency. Diem is a stable currency, and sovereign currency is its underlying asset, so it may have intrinsic value. For example, a unit of Libra is supported by a unit of U.S. dollars or euros. It is not as unreliable as Bitcoin, and its value is relatively stable.

What the central banks of various countries are more worried about is that once Diem is launched, it will become a cross-border payment tool, and this window may be opened. Of course it does not mean that you can get in and out completely, but if there are a lot of leaks, it will become easy. Many countries are more concerned about anti-money laundering, anti-corruption and cross-border capital flow control, which will affect financial stability.

The second level of concern may be greater. Diem may become a potential international currency that can be circulated in all countries. You know, Facebook has close to 3 billion users worldwide in 100-200 countries around the world.

So I think at least psychologically, everyone thinks that a new international currency competition is about to start. Especially since the global crisis, everyone is worried about how long the dollar can last. As a sovereign currency, although the US dollar assumes the function of a reserve currency and is the most important international currency, it is inherently flawed.

Question: Since the establishment of a legal digital currency research institution in 2014 by the Central Bank of China, after 5 or 6 years of hard research, the “DCEP” digital currency was finally developed, which was later renamed “e-CNY” digital renminbi. The people meet. Why is my country’s central bank eager to launch a digital renminbi?

Huang Yiping: President Zhou Xiaochuan wrote an article “Thinking on Reforming the International Monetary System” in early 2009, analyzing a flaw in the international monetary system, that is because everyone always uses US dollars to support international financial transactions. There is a “Triffin dilemma”. That is to say, the more active the international economic activities, the more US dollars we need, but the United States can only issue more and more US dollars to countries around the world in the form of debt. These two requirements contradict each other.

So I think everyone is starting to worry, why after June 18, 2019, it is obvious that central banks of various countries have acted, that is, once Facebook’s digital currency rises, the space for these existing international currencies may be squeezed. Not yet. I wanted to prepare for a fight. Maybe I won’t have the chance in the future. Therefore, all countries are speeding up the development of their central bank digital currencies. My interpretation is that at least this new competition must not be absent.

Because digital currency is a new direction, whether it is the US dollar, the euro or the renminbi in the future, digital sovereign currencies will have an advantage in the new competition.

Question: Some people think that the launch of the digital renminbi is an opportunity to challenge the dominance of the US dollar? What do you think?

Yiping Huang: do not. The digital renminbi is a very small step in the long march of China’s renminbi internationalization. First, the digital renminbi is currently retail and small; second, it is domestic. How to challenge the status of the U.S. dollar? There is still a lot of road ahead for it to go abroad.

So I think it is still 10,000 steps to talk about whether the digital renminbi can become an international currency in the future, whether it can become a wholesale currency, and whether it can be accepted internationally. If you write science fiction, you can write, it may have this possibility.

It’s like saying that someone’s child may be born in a few months, and then ask if he will knock the champion out in the future. Is it possible? Of course it is not completely impossible, but I think it’s too early to think about it now. So I actually tend to everyone not to talk too much about this kind of very remote things all day long, and everyone who talks about it is panicked.

Question: In the pilot, what is the feeling of ordinary people, it seems that digital renminbi is not much different from WeChat/Alipay payment? Will there be a bigger difference next?

Huang Yiping: We previously called the digital renminbi DCEP (Digital Currency Electronic Payment), which translates to “digital currency electronic payment.” Central bank officials have repeatedly said that it is actually a substitute for petty cash in our daily lives. So in the short term, there is actually not much difference from third-party payment. If there is a difference, it means that the central bank’s digital currency itself is legally reimbursable, and the central bank must redeem it.

But this is definitely only the first step. Central bank digital currencies are generally divided into two categories. One is the retail type, which is mainly used to meet the domestic retail payment needs, which we do now; the other is the wholesale type, which is mainly issued to institutional entities such as commercial banks and is mostly used for large-value settlements. . It may be more useful in scenarios such as cross-border payment, investment, and financing.

If you really realize peer-to-peer payment, you are an institution in the United States, and I am an institution in China. If I need to buy your products, I will directly transfer the money to your account. In the future, will we not need to go through a commercial bank? Doesn’t even need to use Swift? But these are very distant things.

Q: Will digital renminbi impact Alipay and WeChat Pay?

Huang Yiping: WeChat Pay and Alipay have a complete ecosystem. I think they will maintain the current pattern for a long time to come. A very important reason why we use payment tools is that we can use them to organize our daily lives. For example, buying air tickets and ordering takeaways are all centered on payment tools. This is the biggest advantage of WeChat Pay and Alipay, which we call the ecosystem. At present, these two institutions basically occupy more than 90% of the mobile payment market share, and have high stickiness.

Can other digital renminbi wallet operators be able to make such payment tools in the short term? How to attract people to pay with this wallet is a big challenge.

But this is also a new opportunity. Now that there are multiple wallet operating agencies, they all show their magical powers, and they also have their own advantages. For example, the Industrial and Commercial Bank of China, with so many users and branches, has a very good natural advantage. Anyway, this is a new beginning and deserves our attention.

Question: Will it also have a certain impact on traditional banks?

Huang Yiping: The stability of banks is the most concerned issue for central banks in various countries. Since the global crisis, regulators in various countries have been trying to identify some so-called systemically important financial institutions. So far, they have basically been banks or insurance companies. The stability of these indirect financing institutions in the financial system is very important. We often say “big but not fail”. Such a large financial institution cannot fail. If it fails, big problems will arise.

In the future, the central bank’s digital currency, after realizing the point-to-point decentralized payment, may have some impact on the traditional financial system, such as causing the disintermediation of commercial banks. But for the supervisory authority, the stability of the entire system must be the primary consideration, so it will not arbitrarily introduce a policy saying that the bank will be fine in the future. I think even if it happens, it will be a very slow process.

Question: Is this impact necessarily a bad thing?

Huang Yiping: Of course, this kind of impact is not necessarily a bad thing. It is a good thing to become more efficient.

But any adjustment will have a cost, and I hope that the impact will not be too intense. For example, we all talk about capital account liberalization. Capital account liberalization means that you can freely invest and finance at home and abroad. It must be good in terms of efficiency, but later we discovered that there is a problem. When we are opening up and pursuing efficiency, we also Will bring increased volatility. As soon as volatility increases, financial crises occur in some countries, but some countries are not affected, so it really depends on your ability to withstand such volatility.

So in this case, our new consensus is that the capital account is ultimately to be opened, but we must maintain a very cautious and steady attitude. A financial crisis will occur as soon as “Dangdang” is opened up. During the Asian financial crisis, the most typical example is Indonesia. The capital account was liberalized the previous year, and the financial crisis occurred in the second year.

Therefore, if the introduction of digital currencies in the future has some impact on the traditional financial system, I believe they will also adopt a more prudent attitude.

Question: What impact will the digital renminbi have on the big data accumulation of these digital financial institutions and the pace and direction of ecosystem construction?

Huang Yiping: If there are transactions between wallet operators authorized by the central bank in the future, for example, I use a WeChat payment wallet, but you use an ICBC wallet, so when I pay you, WeChat Pay will only look at I went out at 200 yuan, but I might not know who got it. Because there may be a division between them. In this sense, there may be some separation of future information, which is a problem.

The advantage is that the entire system is open, because we are all using digital renminbi. I assume that I don’t know who it will be in the future. Maybe the central bank knows all the information. It can see both the Alipay wallet information and the ICBC wallet information, so it breaks the problem of “data islands”. Well, it can become real big data.

But I also have a little worry about whether the official platform still has enough motivation, enough capacity, and enough willingness to analyze these data and provide various services. Because the government is more sensitive to data, the advantage is that the protection of privacy will be better in the future, but it is not known whether the utility will be affected.

Q: So will the digital currency bring a revolutionary impact?

Huang Yiping: This year, Zhou Xiaochuan, the former governor of the Central Bank of China, and IMF President Kristalina Georgieva talked about the impact of digital currency in a dialogue about digital currency. It is a gradual or Evolutionary influence? Or is it a revolutionary influence? On the whole, it is not only an evolutionary influence, but at the same time it may also be a revolutionary influence. My understanding is that it may not have much impact in the short term, and it is just to move forward step by step. But if it is really done, it will be a revolutionary change.

For example, our current digital renminbi is actually only a very preliminary first step-to replace M0, that is, the cash in our circulation. It has not yet replaced M1 and M2, and the central bank does not pay interest on them. This is actually a very small step in the Long March. The renminbi has not yet been internationalized, and neither paper currency nor digital currency can go out. So what we can do in the future, including cross-border payments, will it cause disintermediation of banks, etc., these are very far away things. If the future develops into a complete central bank digital currency, there is unlimited room for imagination, including the question of whether the US dollar will be replaced, all in this space.

 

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