Overview of Digital RMB: Attributes, History, Motivation and Goals

Summary

  • The crypto renminbi is a base currency, and its appearance will change the structure of my country’s base currency. The crypto renminbi is positioned to partially replace M0 and can be used as cash after landing, but its new character string form is different from any form of base currency in the past, so the emergence of crypto renminbi will inevitably change the existing central bank foundation to a certain extent Currency structure.
  • Digital renminbi is a crypto payment tool with value characteristics, and its value attributes are similar to cash. The crypto renminbi supports the loose coupling function of bank accounts, and can realize value transfer without relying on accounts. In the process of using crypto renminbi for transactions, there is no need to bind a real-name account to verify the identity of the holder, but only the value of the crypto renminbi itself.
  • Digital RMB has entered a new stage of pilot testing and scenario selection. Shenzhen Luohu’s crypto RMB test has achieved major breakthroughs in scale, scope and scenarios.
  • The crypto renminbi is a product driven by multiple factors. The development of crypto technology, the public’s demand for crypto payment, the fierce global crypto currency competition, and the high management cost of cash have jointly promoted the issuance of crypto renminbi.
  • Maintaining the sovereign status of the country’s currency and conforming to the development trend of the crypto economy are the two major goals of crypto RMB issuance. Legal crypto currency has become an important carrier for countries to seize the commanding heights of international competition strategies in the era of crypto economy.

This article is the first in a series of “Digital RMB and Global Digital Currency Trends”. We will continue to release relevant reports in the future, welcome to follow.

table of Contents

1. The concept and attributes of crypto RMB

(1) From the perspective of currency: Digital RMB is mainly positioned as cash in circulation (M0)

(2) From a payment perspective: Digital RMB is a crypto payment tool that does not need to rely on accounts

(3) From the application customer base: the crypto RMB application customer base is the general public

(4) Comparison of crypto renminbi with other “currency forms”

2. The development history of crypto RMB

(1) Launch a prototype plan for issuing crypto renminbi and establish a crypto currency research institute

(2) The crypto renminbi has entered a steady R&D stage, and central bank officials have spoken intensively

(3) R&D is accelerated, and the crypto renminbi is ready to be released

(4) Digital RMB starts “closed pilot test”

(5) Digital RMB has achieved breakthroughs in both test scale and application scenarios

3. Digital RMB is a product driven by multiple factors

(1) Digital technology is the “cornerstone” of crypto currency

(2) The increasing public demand for crypto payment

(3) The world is facing fierce crypto currency competition

(4) Cash management costs are high and there is a risk of money laundering

4. Development goals of crypto RMB

(1) Maintaining the sovereign status of national currency and promoting the internationalization of the RMB

(2) Comply with the development trend of the crypto economy and improve the quality and efficiency of the crypto economy

Author: Zhao Yue

Editor: Zhaosheng

In 2020, the crypto RMB has entered the pilot test phase.

In early April, the Central Bank’s Digital Currency Research Institute pointed out that the crypto renminbi will first conduct internal closed pilot tests in Shenzhen, Suzhou, Xiongan New Area, Chengdu and future Winter Olympics scenarios. Subsequently, a number of state-owned major banks have reported the news of internal testing of crypto wallets.

Since July, the Digital Currency Research Institute of the Central Bank has reached cooperation with Didi, Meituan, Bilibili and other institutions to jointly promote the functional innovation of crypto RMB mobile applications and the application of scenarios.

In October, the crypto renminbi realized a pilot test with a larger scale, wider scope and richer scenarios. It was distributed in the form of red envelopes to 50,000 people who made appointments in Luohu, Shenzhen, which can be used for consumption by more than 3800 cooperative merchants. For the first time, relevant transaction data on the crypto renminbi was also officially disclosed. According to Fan Yifei, deputy governor of the People’s Bank of China, the crypto renminbi has processed 3.13 million transactions.

On November 1, Xi Jinping, General Secretary of the Communist Party of China Central Committee, published an important article in the “Seeking Truth” magazine, pointing out that he must actively participate in the formulation of international rules for cryptocurrencies. On November 3, the full text of the “14th Five-Year Plan” was disclosed, which pointed out that the research and development of crypto currency should be promoted steadily.

Since the beginning of exploration in 2014, the development of crypto RMB has always been the focus of market attention. In order to show its “fundamental look”, 01 Blockchain has analyzed and researched the crypto renminbi from four dimensions: conceptual attributes, development history, R&D motivations, and development goals, in order to help relevant people strengthen the basics Cognition.

1. The concept and attributes of crypto RMB

Regarding the concept of crypto renminbi, Fan Yifei, deputy governor of the People’s Bank of China, pointed out in the article “Analysis on the Policy Implications of Digital RMB M0 Positioning” that the crypto renminbi is a crypto legal tender issued by the People’s Bank of China. Digital RMB is mainly positioned as cash in circulation (M0). It is operated by designated operating institutions and exchanged to the public. Based on the generalized account system, it supports the loose coupling function of bank accounts, which is equivalent to banknotes and coins, and has value characteristics and methods. Compensation, support controllable anonymity.

Digital RMB is abbreviated as “DC/EP” in English, “DC” is the abbreviation of “Digital Currency”, and “EP” is the abbreviation of “Electronic Payment”.

It can be seen that the crypto renminbi is not only a currency, but also an electronic payment tool. In fact, the boundary between currency and payment instrument is not clear: on the one hand, currency naturally has the function of acting as a means of payment, and it can also act as a payment instrument in practice; on the other hand, the existing various electronic payment instruments must To a certain extent, it can also be regarded as different carriers or manifestations of currency. However, when discussing crypto renminbi, we must first affirm that its basic attribute is currency, which is the composition and complement of the existing legal currency system, and secondly, it is a crypto payment tool.

(1) From the perspective of currency: Digital RMB is mainly positioned as cash in circulation (M0)

Digital RMB is mainly positioned at M0, and the issuer is the People’s Bank of China. The issuance of crypto renminbi is centrally managed by the central bank. Specifically, the People’s Bank of China is responsible for wholesale crypto renminbi to designated commercial banks and the full lifecycle management of crypto renminbi. Designated commercial banks and other institutions are responsible for providing crypto renminbi exchange services to the public. . Digital renminbi is legally compensatory, that is, as long as the domestic electronic payment scene can be used, crypto renminbi cannot be refused, just as no place can refuse to accept renminbi cash.

The crypto renminbi is a base currency, and its emergence will change my country’s base currency structure. The base currency generally refers to the cash held by the public in circulation outside the banking system and the deposit reserves held by commercial banks (including statutory deposit reserves and excess reserves). The crypto renminbi is positioned to partially replace M0 and can be used as cash after landing, but its new character string form is different from any form of base currency in the past, so the emergence of crypto renminbi will inevitably change the existing central bank foundation to a certain extent Currency structure.

At this stage, crypto RMB mainly replaces M0, rather than M1 and M2, mainly for the following two considerations: On the one hand, M1 and M2 based on bank accounts have basically realized electronic and cryptoization, and support the inter-bank payment of M1 and M2 circulation The clearing system, commercial bank internal systems, and various payment methods of non-bank payment institutions can meet the needs of economic development at this stage. Substituting crypto currency for M1 and M2 will cause a huge waste of resources in the existing system, and it will not necessarily improve Actual efficiency; on the other hand, the chain effect of the transformation of M1 and M2 is more obvious, which may cause credit expansion and currency multiplier effects due to the impact on commercial deposits, disrupting the existing economic order.

(2) From a payment perspective: Digital RMB is a crypto payment tool that does not need to rely on accounts

Digital RMB is a crypto payment tool with value characteristics. The value attribute of crypto renminbi is similar to that of cash, and it has value in itself.

Traditional electronic payment tools are based on commercial bank deposit currencies, based on the account tight coupling model, and rely on accounts in the process of transfer and circulation. In other words, the traditional electronic payment tool itself has no value. It is tied to its account in a commercial bank. When using the traditional electronic payment tool to pay, the trader’s account information needs to be verified. Therefore, such electronic payment tools are difficult to meet the needs of users for anonymous payment and privacy protection.

As a crypto payment tool, crypto renminbi supports the loose coupling function of bank accounts, and can realize value transfer without relying on accounts. In the process of using crypto renminbi for transactions, there is no need to bind a real-name account to verify the identity of the holder, but only the value of the crypto renminbi itself. At the same time, in order to meet the relevant provisions of anti-money laundering, the crypto renminbi wallet adopts a “grading and limit arrangement”, that is, wallets with lower levels can only make small payments. If large transactions are required, identity authentication and account binding are required Wait for the corresponding permissions.

Table: Classification of crypto RMB wallet levels

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Source: 01 Blockchain collation

(3) From the application customer base: the crypto RMB application customer base is the general public

Integrating the definition of central bank crypto currency by the International Monetary Fund and the Bank of England, “Central Bank Digital Currency (CBDC) is an electronic form of legal tender issued by the central bank, which can be widely used by individuals and businesses for payment, and has certain Programmability or support for smart contracts.”

According to different objects, CBDC can be divided into two categories, one is retail CBDC for C-end, and the other is wholesale CBDC for financial institutions. The crypto renminbi issued by the People’s Bank of China is a retail CBDC, and its application customer base is the general public, mainly used in small retail scenarios.

Furthermore, the Bank for International Settlements divides retail CBDC into three categories, namely direct, indirect and hybrid. Among them, the direct type means that the central bank does not need an intermediary to directly provide payment services to individuals; the indirect type means that the central bank relies on intermediary agencies to issue cryptocurrencies, but the central bank does not control creditor’s rights records; the hybrid type means that the central bank introduces payment service providers, and real-time payment is provided by payment services The provider is done, but the central bank can still control all the debt records. The hybrid model not only meets the design demands of the central bank’s crypto currency, but also meets the demands for speed and efficiency in retail payments. It is currently the most realistic design model.

Figure: Three operating structures of retail CBDC

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Source: Xiaomi Financial Technology, 01 blockchain finishing

From the perspective of issuance methods, the crypto renminbi is more in line with the hybrid operating structure. The crypto renminbi is launched using the same “central bank-commercial bank” dual model as paper currency, that is, the “two-tier operating system”. The so-called two-tier operating system, the upper layer is the central bank to commercial banks, and the lower layer is the commercial bank to the public. Specifically, the central bank will exchange the crypto renminbi quota to commercial banks in accordance with the 100% reserve system, and then the commercial banks will exchange the crypto currency to the public. During the issuance process, the People’s Bank of China is in a centralized management position, and records, monitors and analyzes the exchange and circulation of crypto renminbi by mastering full transaction information.

(4) Comparison of crypto renminbi with other “currency forms”

Digital RMB is essentially the digitization of RMB cash. There are many differences from “monetary forms” including cash, third-party payment account balances, bank deposits, Bitcoin and Libra. In order to further understand the conceptual attributes of the crypto renminbi, the 01 blockchain compares the crypto renminbi with other “currency forms” from 10 dimensions, including the issuer, distribution agency, reserve ratio, underlying assets, and information endorsement.

Table: Comparison of crypto RMB and other currency forms  

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Source: 01 Blockchain collation

2. The development history of crypto RMB

In the development of legal crypto currency, the People’s Bank of China has shown strong forward-looking. In 2014, the central bank established a legal crypto currency research group and started work related to legal crypto currency research and development. By 2019, the central bank has basically completed the top-level design, standard formulation, function research and development, and joint debugging and testing of the crypto RMB. In 2020, the crypto RMB has entered a new stage of pilot testing and scenario selection.

Figure: Important development nodes of crypto RMB

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Source: 01 Blockchain collation

(1) Launch a prototype plan for issuing crypto renminbi and establish a crypto currency research institute

In 2014, under the advocacy of the then governor Zhou Xiaochuan, the central bank established a legal crypto currency research group to discuss the possibility of the central bank issuing cryptocurrencies. In 2015, the central bank made two rounds of revisions to the prototype plan for issuing legal crypto currency. In January 2016, the central bank clarified the strategic goal of issuing crypto currency and publicly stated that it would issue legal crypto currency.

In November 2016, the central bank decided to use the crypto bill trading platform as a pilot application scenario for legal crypto currency, and initiated the closed development of the crypto bill trading platform. In February 2017, the data bill trading platform was successfully tested. In May of the same year, the Central Bank Digital Currency Research Institute was officially established. According to the recruitment information released by it, the Digital Currency Research Institute is mainly responsible for crypto currency legal research, blockchain development and chips. Design and other related work.

The Central Bank Digital Currency Research Institute is the core force in the research and development of crypto RMB. From the establishment of a crypto currency research group by the central bank to the official establishment of the crypto currency research institute, this stage is a preparatory stage for the development of crypto RMB.

(2) The crypto renminbi has entered a steady R&D stage, and central bank officials have spoken intensively

In March 2018, the Central Bank held the 2018 National Currency, Gold and Silver Work Video and Telephone Conference. The meeting pointed out that in 2018, the Central Bank’s currency and bullion department should solidly promote the central bank’s crypto currency research and development.

At the same time, the Central Bank Digital Currency Research Institute began to continuously strengthen the research and development capabilities of crypto renminbi. In June 2018, the Central Bank Digital Currency Research Institute established a wholly-owned Shenzhen Financial Technology Co., Ltd., which is currently the only financial technology development company wholly-owned by the Central Bank Digital Currency Research Institute. The company is mainly positioned as a high-end R&D and evaluation center for financial technology and legal crypto currency, a technology incubation center, a technology exchange and cooperation center, and a financial technology talent training center;

In September of the same year, the Central Bank Digital Currency Research Institute cooperated with Nanjing Municipal People’s Government, Nanjing University, Bank of Jiangsu and Nanjing Branch of the People’s Bank of China to establish Nanjing Financial Technology Research and Innovation Center and China Central Bank Digital Currency Research Institute (Nanjing) application demonstration base;

In March 2019, the Central Bank Digital Currency Research Institute established the Yangtze River Delta Financial Technology Co., Ltd. through its subsidiary Shenzhen Financial Technology Co., Ltd. and Suzhou High-speed Rail New City State-owned Assets Management Co., Ltd. Di Gang, deputy director of the Central Bank Digital Currency Research Institute, served as the legal person.

The three financial technology companies have different focuses on crypto RMB research and development, but they all focus on financial technology and crypto currency.

Figure: Research positioning of three financial technology companies under the Central Bank Digital Currency Research Institute

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Source: 01 Blockchain collation

With the steady progress of research and development, relevant central bank officials have also begun to intensively speak out about legal cryptocurrencies. Among them, Yao Qian, then deputy director of the Department of Science and Technology of the Central Bank and director of the Central Bank’s Digital Currency Research Institute, pointed out in the article “Experimental Research on the Digital Currency Prototype System of Bank of China” that “the emergence of crypto currency is regarded as another major revolution in currency forms. , Is expected to become the mainstream currency and important financial infrastructure in the crypto economy era. It is imperative for the central bank to promote the issuance of central bank crypto currency (CBDC).”

Chart: 2018 Central Bank Officials’ Voice on Digital RMB

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Source: 01 Blockchain collation

It can be said that since the establishment of the Central Bank Digital Currency Research Institute, the crypto renminbi has entered a steady research and development stage. At the same time, from 2018 to the first half of 2019, it has also become an important stage for the Central Bank Digital Currency Research Institute to expand its crypto renminbi research and development capabilities. During this period, the Central Bank Digital Currency Research Institute established three financial technology companies and began to intensively speak out on crypto renminbi research and development work. The market reveals relevant research and development progress.

(3) R&D is accelerated, and the crypto renminbi is ready to be released

With the increasingly fierce development of global legal cryptocurrencies, crypto RMB research and development began to accelerate in the second half of 2019.

On July 9, 2019, according to Wang Xin, Director of the Research Bureau of the People’s Bank of China, the State Council has formally approved the research and development of crypto renminbi. The central bank is organizing market institutions to engage in corresponding work and will launch it as soon as possible. On August 2, the People’s Bank of China held a work video conference for the second half of 2019, which clearly pointed out that the development of crypto renminbi should be accelerated in the second half of the year, and the development trend of domestic and foreign virtual currencies should be tracked in a timely manner. On August 10, Mu Changchun, then deputy director of the Payment and Settlement Department of the People’s Bank of China, stated at the Third Yichun Forum of Forty People in China’s Finance that the crypto renminbi “is now ready to come out.”

At the beginning of 2020, the central bank’s official WeChat account issued “Taking Inventory 2019丨Financial Technology”, pointing out that the central bank has basically completed the top-level crypto currency design, standard formulation, function research and development, and joint debugging and testing, and has entered the selection of pilot verification areas, scenarios, and service scopes. jobs.

(4) Digital RMB starts “closed pilot test”

In 2020, the crypto RMB will enter the “closed pilot test” stage. In April 2020, the Central Bank Digital Currency Research Institute pointed out that the current legal crypto currency research and development work is steadily advancing. It will first conduct internal closed pilot tests in Shenzhen, Suzhou, Xiongan New District, Chengdu and future Winter Olympics scenarios to continuously optimize and improve Features.

Chart: Digital RMB pilot status

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Source: 01 Blockchain collation

On August 14, 2020, the Ministry of Commerce issued the “Notice on Printing and Distributing the Overall Plan for Comprehensively Deepening the Pilot Program for the Innovation and Development of Trade in Services”, stating that it will be carried out in the Beijing-Tianjin-Hebei, Yangtze River Delta, Guangdong-Hong Kong-Macao Greater Bay Area and the pilot areas in the central and western regions where conditions permit Digital RMB pilots, and the “4+1” pilot model is still adopted, that is, closed pilot tests will be conducted in Shenzhen, Suzhou, Xiongan New District, Chengdu and future Winter Olympics scenes, and will be expanded to other regions as appropriate.

The launch of the crypto renminbi is a huge systematic project, and risk prevention and control is the top priority. The central bank and related departments need to ensure the stability of the underlying system, the availability of functions, the convenience of the use process and the matching of related scenarios, as well as sufficient market competitiveness. Only by doing sufficient and meticulous pilot work and preparations in the early stage to prevent problems before they happen, the crypto RMB can withstand the test of the market and users.

Therefore, it is speculated from the current test progress and scenario implementation that in the short term, the crypto RMB will continue to be in the closed pilot test stage, and the scope of the pilot may be expanded in due course, but it will not be fully launched to the society on a large scale.

(5) Digital RMB has achieved breakthroughs in both test scale and application scenarios

There is no clear timetable for the official issuance of the crypto renminbi, but the current overall progress has exceeded market expectations, especially the test in Shenzhen in October, allowing the crypto renminbi to be tested in large-scale and large-scale actual scenarios.

On October 8, 2020, the Shenzhen Municipal Government Service Data Administration released information on the “2020 Reward Luohu” promotion on its official public account “i Shenzhen”. The event will distribute 10 million yuan of “Luohu Digital RMB Red Packets” to individuals in Shenzhen, each with a value of 200 yuan and a total of 50,000 red packets. Compared with the previous pilot test, this time has achieved greater breakthroughs in the test scale and application scenarios.

From the perspective of the target test groups, whether it was Suzhou’s payment of transportation subsidies for some unit employees with crypto renminbi, or the Xiongan New District convening McDonald’s, Starbucks and other companies to hold crypto renminbi promotion, it was a small-scale, small-scale internal pilot and promotion , Ordinary people can only “watch” and cannot participate; the crypto RMB red envelope pilot in Shenzhen is for all Shenzhen citizens (including non-Shenzhen registered personnel working in Shenzhen), and the user groups that can participate have taken an order of magnitude. .

In terms of application scenarios, the previous crypto renminbi pilots were mostly carried out in non-high frequency scenarios such as wages and subsidies; and this time, the relevant Shenzhen authorities have completed the transformation of the crypto renminbi payment system for 3389 merchants in Luohu District, covering shopping malls, supermarkets, and daily It mainly tests the application of crypto renminbi in real life consumption scenarios in various categories such as retail, catering consumption, and life services. Small high-frequency retail payment scenarios are the main areas where crypto renminbi will play a major role in the future, so this test is a major breakthrough in the application of crypto renminbi in the pilot process, and will accumulate experience in the official issuance and use of crypto renminbi.

3. Digital RMB is a product driven by multiple factors

The evolution of legal currency from physical form to crypto form is part of the historical evolution of money. The crypto renminbi is a product driven by multiple factors such as technological factors, social demand factors, competitive factors, and internal factors.

Chart: Driving Factors of Digital RMB Issuance

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Source: 01 Blockchain collation

(1) Digital technology is the “cornerstone” of crypto currency

Looking back at the evolution of currency, the iterative development of technology promotes the evolution of currency forms. Every major scientific progress will be accompanied by the evolution of currency patterns. The development of metal smelting and casting technology has completed the conversion of currency from physical currency to metal currency. Metal currencies such as copper, iron, gold, and silver have begun to appear; the primary factor for the emergence of paper currency is the improvement of papermaking and the improvement of printing. This enables paper to be manufactured in large quantities while achieving low cost and preliminary anti-counterfeiting; the development of computer and network technology has enabled the rapid development of electronic payments.

Technological progress is the driving force for the development of currency patterns. Nowadays, the gradual maturity of crypto technology has promoted the innovation and development of crypto renminbi, providing more optional technologies for its development. At present, although crypto RMB R&D operations do not pre-determine technical routes, at the level of operating institutions, the central bank maintains technological neutrality and does not interfere with the technical route selection of commercial institutions. However, according to Mu Changchun, director of the Central Bank’s Digital Currency Research Institute, the crypto renminbi has absorbed the technical “core” of the blockchain. [The technical core of the crypto RMB will be elaborated in the follow-up report]

(2) The increasing public demand for crypto payment

China has become the world’s largest mobile payment market. In recent years, the scale of mobile payment has increased significantly. In 2019, the number of mobile payment services in my country has reached 101.431 billion, with an amount exceeding 347 trillion yuan. The rapid development of mobile payment not only better meets the needs of economic development, but also cultivates the public’s habit of using crypto payment tools.

Chart: Growth in the number and amount of mobile payments

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Source: People’s Bank of China

Today, people are increasingly dependent on crypto payment tools. Whether in prosperous cities such as Beijing, Shanghai, Guangzhou and Shenzhen, or in more remote rural areas, mobile payment has become one of the most commonly used payment methods in people’s daily consumption scenes such as dining, shopping, and transportation. According to the “Analysis Report on China’s Inclusive Financial Indicators (2019)” issued by the Central Bank, the penetration rate of electronic payments continues to rise. In 2019, the proportion of adults using electronic payments nationwide was 85.37%, an increase of 2.98% from the previous year. The proportion of adults using electronic payments in rural areas was 76.21%, an increase of 4.06% over the previous year.

As the development of crypto technology is accelerating my country’s entry into the crypto economy era, in 2019, my country’s crypto economy has added value of 35.8 trillion yuan, accounting for 36.2% of GDP, and contributing 67.7% of GDP growth. In the era of crypto economy, the public’s demand for crypto payment tools will further increase.

Traditional electronic payment tools meet the needs of the development of the crypto economy to a certain extent, but based on the characteristics of the tightly coupled account model, there is greater room for improvement in inclusive finance, payment efficiency and user privacy protection. Fan Yifei, deputy governor of the People’s Bank of China, pointed out that the use of crypto renminbi can effectively break retail payment barriers and market segmentation, avoid market distortions, protect the rights and interests of financial consumers, and promote inclusive finance; at the same time, the implementation of centralized management of crypto renminbi can realize payment That is, settlement can improve the efficiency of merchant capital turnover, help solve the liquidity problem of small and medium-sized enterprises, and improve the speed of currency circulation and the efficiency of monetary policy implementation. In addition, the crypto renminbi has the characteristics of controllable anonymity, that is, the relevant transaction information of the public can only be controlled by the central bank, and both parties to the transaction cannot obtain the transaction information of the other party, which can meet the public’s demand for privacy protection during use.

Moreover, as mobile payment has become an important financial infrastructure, once it has financial or operational risks, it will have a systemic impact on financial stability and cause great inconvenience to the daily life of the public. For example, in 2015, the downtime of Alipay caused by the digging of a fiber in Xiaoshan District, Hangzhou; in 2016, some users’ transfers due to a failure of a computer room in South China, and abnormal functions, etc. All of these have had a certain impact on the daily life of the public.

(3) The world is facing fierce crypto currency competition

Over the past ten years, decentralized currencies represented by Bitcoin have gradually become popular in the market. In June 2019, the release of the Libra white paper has attracted great attention from countries all over the world. Compared with decentralized currencies such as Bitcoin, institutional cryptocurrencies represented by Libra have the characteristics of becoming a universal trading tool in the crypto financial market. Once these private cryptocurrencies form an application scale, they will squeeze and replace the national currency and threaten the national currency sovereignty.

First, the relationship between private currency and sovereign currency will grow and fall. Once the scale of private crypto currency applications expands, the use of sovereign currency will gradually decline, and the status of national sovereign currency will also be threatened; second, private crypto currency The characteristics of anonymous transactions and cross-border flows of funds will pose challenges to anti-money laundering, anti-terrorism financing, and national capital control; third, private cryptocurrencies lack a central adjustment mechanism, which makes it difficult to ensure currency stability and will contribute to the stable development of the economy Cause adverse effects.

In response to the erosion of national monetary sovereignty by private cryptocurrencies, central banks in some countries have begun to conduct targeted research and testing of central bank cryptocurrencies (CBDC). According to a survey conducted by the Bank for International Settlements (BIS) in 2019, About 80% of central banks in the world have conducted various levels of research and testing on central bank cryptocurrencies.

Chart: Progress of global central bank cryptocurrencies

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Source: CBDC Tracker, 01 blockchain sorting

At present, the global crypto currency has gradually formed a “three-strong pattern”, that is, the crypto renminbi led by the People’s Bank of China, the crypto dollar plan of the United States, the Libra led by Facebook, and the cryptocurrencies promoted by the central banks of Sweden and Singapore. The launch of the crypto renminbi can not only resist the erosion of private cryptocurrencies, but also promote the internationalization of the renminbi.

(4) Cash management costs are high and there is a risk of money laundering

The high cost of cash management and money laundering risks are internal motivations for the People’s Bank of China to issue legal cryptocurrencies.

The entire operation trajectory of banknotes includes production, transportation, storage, destruction and daily management. Different links will incur corresponding costs, and it also requires continuous investment in anti-counterfeiting technology research and development. In 2019, the production cost of RMB cash in my country is about 116.2 billion yuan, and the cost of cash storage, transportation, circulation and destruction is about 276.7 billion yuan per year.

The operating system cost of the crypto renminbi is theoretically a one-time investment, after which the marginal cost is diminishing and even approaching zero. Commercial banks do not need to continuously invest in transportation and safe storage, but only need to transfer and store online. In actual circulation, the loss cost and maintenance cost of the crypto renminbi are also almost zero.

In addition, because cash is anonymous and untraceable, a small number of criminals use large cash transactions to evade bank debts, evade national taxes, and even trigger some major economic crimes, which may endanger the country’s economic and financial order. Safety. While maintaining the attributes and value characteristics of cash, the crypto renminbi can achieve controllable anonymity and accurately track currency. It can not only effectively reduce financial crimes such as money laundering and tax evasion, but also help the central bank to monitor currency circulation and macroeconomic operations. Grasp of.

4. Development goals of crypto RMB

The trend of social cryptoization is irreversible. As an important carrier of global currency and financial competition in the crypto economy era, legal crypto currency is also becoming more and more important. Yao Qian, the former director of the Digital Currency Research Institute of the Central Bank, once pointed out, “If finance is the core of the modern economy and the blood of the real economy, currency is the core of the economic core, the blood circulating in the economic blood, and legal crypto currency It can be called the jewel in the crown of financial technology and has a huge impact on the future development of the financial system.”

(1) Maintaining the sovereign status of national currency and promoting the internationalization of the RMB

Protecting national currency sovereignty and legal currency status is the primary goal of crypto RMB issuance. The centralized management of the crypto renminbi can resist the erosion of global private cryptocurrencies, prevent currency issuance rights from being sidelined, maintain the national currency sovereignty, and ensure the stability of the crypto renminbi.

At the same time, seizing the opportunity of legal crypto currency research and development can also help promote the internationalization of the RMB. Although currency digitization is not a sufficient condition for internationalization, technical factors have never been a decisive factor for currency internationalization. To realize the internationalization of the RMB, the core is still to improve the stability, availability, and availability of the RMB itself. However, the use of technology to promote the development of crypto renminbi is conducive to promoting the internationalization of the renminbi.

Currently, cross-border payment is the most widely used application scenario of crypto currency. Traditional cross-border payment services have been facing problems such as high payment fees and long settlement cycles. The application of crypto currency can greatly reduce the handling fee and time cost of cross-border trade. With the advancement of crypto renminbi research and development, in line with the One Belt One Road strategy, merchants/users in countries along the route can directly use crypto renminbi to conduct trade with domestic merchants/users, which will help promote the internationalization of the renminbi.

Chart: Digital RMB and cross-border payment

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Source: 01 Blockchain collation

(2) Comply with the development trend of the crypto economy and improve the quality and efficiency of the crypto economy

In recent years, the trend of cryptoization of the global economy has become more obvious. Online conferences, online medical care, online education, and crypto finance have flourished. The scale of the crypto economy has continued to expand, and the status of the crypto economy in the national economy has continued to rise. According to relevant data from the Institute of Information and Communications Technology, in 2019, 47 countries, including China, the United States, Japan, Germany, and South Korea, accounted for 41.5% of their GDP, an increase of 1.2 percentage points from last year. From a specific country perspective, the United States The scale of the crypto economy is the largest in the world, reaching USD 13.1 trillion. China ranks second in the world, with a crypto economy of US$5.2 trillion, which is far from the United States.

The issuance and trading platform of crypto currency is the core financial infrastructure in the era of crypto economy. Accelerating the development of crypto renminbi will play an important role in promoting the development of China’s crypto economy. Yao Qian, the former director of the Central Bank’s Digital Currency Research Institute, believes that legal crypto currency mainly promotes the development of the crypto economy in four aspects: improving payment efficiency, promoting inclusive finance, strengthening macro-control and strengthening risk prevention.

First, the legal crypto currency can perform point-to-point instant payment and settlement, eliminating the need for intermediary reconciliation, clearing, and settlement processes, automating execution, reducing payment costs and error rates, and improving payment efficiency.

Second, through the use of crypto technology, legal crypto currency can increase the coverage of financial services for rural, remote areas, and vulnerable groups, and provide a series of appropriate and responsible financial services for the above-mentioned restricted groups, including payment, credit, Insurance, securities, financial planning, etc.

Third, the traceability and related technical attributes of legal crypto currency allow the central bank to track and monitor the circulation of crypto currency after it is released, and obtain currency holographic information. On this basis, the central bank can also use big data analysis technology to detect individual economic behaviors, grasp the macro from the micro, and improve the predictability, accuracy and effectiveness of monetary control, and strongly support the “dual pillars” of monetary policy and macro-prudential policies. The soundness and perfection of the regulatory framework.

Fourth, through the capture of the economic information flow by the legal crypto currency flow and the analysis based on big data, the micro dynamic behavior of the economy can be monitored in a timely manner, the supervision coverage is expanded, the risk data is widely aggregated, and an efficient, real-time, and intelligent system can be constructed Risk monitoring, early warning and management systems, improve the efficiency of macro-prudential supervision, and effectively prevent financial systemic risks.

Notes and references:

[1] my country’s announced money supply (the currency stock of the whole society is the sum of financial instruments that bear the means of circulation and payment at a certain time):

(1) M0 (currency in circulation): cash in circulation (issue of cash outside the scope of the money supply statistics institution);

(2) M1 (narrow currency) = M0 + corporate deposits (corporate deposits minus unit time deposits and self-raised infrastructure deposits) + government agencies, groups and troops deposits + rural deposits + credit card deposits (individuals);

(3) M2 (broad money) = M1+ + savings deposits of urban and rural residents + corporate deposits with fixed-term nature of deposits (unit time deposits and self-raised infrastructure deposits) + foreign currency deposits + trust deposits + securities company customer deposits + housing provident fund Central deposits + deposits from non-deposit financial institutions + money market funds held by non-deposit financial institutions.

[2] Fan Yifei, “Analysis on the Policy Implications of the Positioning of Digital RMB M0”.

[3] Mu Changchun, “Frontiers of Technology and Finance: Libra and Digital Currency Outlook”.

[4] Study Times article: “Actively Planning the Development of my country’s Digital Currency”.

[5] Yao Qian, a speech at the 2nd “Chinese Era of Digital Finance” Annual Conference of Peking University Digital Finance Research Center.

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