Digital currency and electronic payment

1/6. The future world of DCEP

One day in the future, you will buy a bag in a luxury store and pay. At this moment, the salesperson who was originally smiling suddenly looked at you with contempt: "I'm sorry, you can't use this money. It has a signature of charity donation attached and can only be used for the purchase of charity materials."

You are shocked: "WTF, there is a name on the money?"

The salesperson said coldly: "Of course, in this era Money has a name, are you from time travel?"

Before I finished speaking, the sound of police cars could be heard...

The above is a future use scenario that I envision for the DCEP (central bank digital currency) being launched by the central bank. At present, the digital RMB pilot has basically completed top-level design, standard formulation, functional research and development, joint debugging and testing, and is currently undergoing internal closed pilot testing.

If the test goes well and if the domestic and international situation demands it, we will use DECP for daily consumption within one or two years.

So what is the difference between DCEP and the cash we use now, as well as Alipay and WeChat payment? How is it different from Bitcoin and Libra that Facebook is pushing? What completely different experiences will it bring to our lives in the future?

2/6. Digital currency and M0, M1, M2

To know the difference between DCEP central bank digital currency and online payment, we must first clarify the three different definitions of currency ——The difference between M0, M1 and M2.

M0 refers to cash in circulation, including various banknotes and coins - so the money you pay through Alipay and WeChat does not belong to M0.

Looking at M1, also known as narrow money, its scope includes all M0 and unit demand deposits. It is important to note that the money in your bank card is a personal current deposit, so the money paid through online banking does not count as M1.

Finally, there is M2, also known as broad money. Its scope includes M1 and residents’ savings deposits, unit time deposits and other deposits.

Why is it so troublesome to create three M’s?

Modern currency is issued based on national credit. The amount of issuance is not limited by gold reserves, and it is easy to exceed the issuance. The country must always keep track of the amount of currency circulating in the society, but Currencies often exist in different forms, with different payment capabilities and different economic meanings, so they must be classified and counted.

Compare a country to a home and evaluate the family's financial situation. M0 is the money that can be used immediately, M1 represents the money that needs to be paid through bank channels, and M2 represents Money that belongs to you but can only be used if you take it out and turn it into M0 or M1.

Your wealth depends on M2, but your ability to pay is related to M1. But if you suddenly become ill, only M0 is useful.

In the same way, when counting a country’s currency, the higher the M0 level, the more cash people have in their hands and the safer their lives; the higher the M1 level, the more it represents the residents’ current The stronger the purchasing power; the higher the M2 level, the higher the demand of the entire society in the future and the greater the inflationary pressure.

But as mobile payments become widely accepted, this statistical caliber is becoming increasingly inaccurate.

For example, why were personal current deposits counted as M2, while corporate current deposits were counted as M1? Because in the past, our habit was to withdraw money from the bank or ATM before spending it, but the current deposit of the company can be transferred out with a check. The liquidity of the former is obviously weaker than that of the latter,

But after the popularity of bank cards, personal current deposits can be paid without withdrawing money. In theory, personal current deposits should also be counted as M1; when mobile payment comes out, we will have almost no cash on us. Alipay , A considerable part of the money spent on WeChat payment has actually become M0.

Therefore, the current monetary policy is basically based on M2.

But Alipay and WeChat Pay are not legal tender after all, they are just deposits. Although the degree of development of digital payments in our country is far ahead of other countries, they are only based on M1 or M2 payments, not currency.

Bitcoin and the envisioned Libra are both true M0 digital currencies. These digital currencies that may be widely accepted across national borders will affect the actual currency in circulation in a country. Therefore, sooner or later we need a digital currency that truly belongs to M0.

After understanding this, we can talk about the differences between DCEP and physical currency, online payment, and non-sovereign currencies such as Bitcoin and Libra.

3/6. The difference between DCEP and physical currency

Although electronic currency is the electronic version of cash, changes in this form have brought about changes in financial functions, such as negative interest rates.

In the era of physical cash, if deposits have negative interest rates and you have to pay "deposit interest" to the bank, you must be holding cash, so the theoretical minimum interest rate for monetary policy is zero.

But in the era of digital currency, negative interest rates are not only for deposits, but also charge certain fees for digital currencies through digital wallets. This is the true negative interest rate. Even if you hold Cash is useless, the only option is to spend it quickly or invest it.

In addition, in the era of physical currency, the cost of currency issuance increases with the increase in circulation, but digital currency is based on a technical structure built in advance and does not occupy storage space. There is no physical transfer, the marginal cost is almost zero, and the cost of issuing 100 billion and 100 billion is almost the same, leading to a great increase in the efficiency of monetary policy implementation.

The most important thing is that the use of banknotes is completely anonymous, and transactions cannot be traced back, so the underworld uses cash transactions; and the essence of DCEP is an encrypted string, in which Carrying the holder's personal identity authentication information, theoretically every node that any DCEP goes through from creation to withdrawal will be completely recorded. This crucial feature will be analyzed in more detail later.

Of course, DCEP and physical currency are both M0, and there is no essential difference, but the difference between it and online banking payment and third-party payment is very obvious.

4/6. The difference between DCEP and electronic payment

The money in Alipay’s “balance” is M1, which is equivalent to Alipay’s deposit in the bank; while the “quick payment” in Alipay "Payment" is the same as online banking payment. It uses the money in your bank card and belongs to M2.

You use Alipay's "balance" to buy a 2-yuan bun, which is equivalent to transferring 2 yuan from Alipay to the bun shop owner's Alipay. If it is " "Quick Payment" or online banking payment, that is, the bank transfers the 2 yuan in your card to the Alipay deposit account.

DCEP belongs to M0 and is an electronic form of cash.

In the future, you use the DECP in your mobile wallet to buy 2 yuan of wallet, which is equivalent to you paying 2 yuan in coins (just electronically), and the bun shop owner gets The 2 yuan DCEP has nothing to do with your Alipay balance or bank card balance (assuming you do not use an electronic wallet).

For consumers, the process of using DCEP is still the same as electronic payment on the surface, but the actual difference is still very big.

First of all, electronic payment transfers the numbers on the account, which requires centralized real-time accounting of the account, so it must be connected to the Internet; and DCEP is cash in "electronic form" , has nothing to do with accounts. The theory is that it can be done without the Internet, and only requires "point-to-point" interconnection between two mobile phones. Of course, we don’t know exactly how to use it yet.

Secondly, electronic payment actually involves bank accounts. Not only are transactions real-name, but the level of information that can be touched is relatively low, and a bank employee can also see it; DCEP does not require a bank account. Even the mobile phone number can be hidden, so it is limited anonymity - it is called "limited anonymity" because the issuing central bank can still find it.

Finally, DCEP has a certain degree of cooperation with online banking and third-party payment.

DCEP is still issued through commercial banks, which initiate requests to the central bank with corresponding deposit reserves to generate and receive DECP; then the private sector holds the After cash or bank deposits are converted into DCEP, the digital currency officially enters the circulation field and becomes M0.

DCEP is legal currency. Once the country announces the full use of DCEP, no unit or individual may refuse it; therefore, the only choice for online banking and third-party payment is how to serve it.

DCEP is a currency with no interest. Holding a large amount means waiting for depreciation. Its digital characteristics make it easy to access and withdraw. Most people just regard it as "pocket money". Therefore, future online banking and third-party payments are more likely to provide DECP with more value-added services in the form of "electronic wallets".

The central bank does not preset technical routes and encourages institutional innovation. It also intends to promote DECP through third-party payment.

Knowing the non-competitive relationship between DCEP and online payments, what is its relationship with non-sovereign currencies such as Bitcoin and Libra?

5/6. The difference between DCEP, Bitcoin and Libra

First, let’s take a look at the difference between DCEP and Bitcoin:

As mentioned earlier, DCEP is a sovereign currency like banknotes. Its issuance and circulation are endorsed by national credit and can be exchanged with RMB banknotes at a 1:1 equivalent value. The most essential difference between Bitcoin and traditional currencies is that it has no issuer, is generated based on a specific algorithm, and relies entirely on blockchain technology and encryption methods to provide circulation, recording and security.

Therefore, Bitcoin is a "decentralized" currency with a limited total amount, no inflationary pressure, and is completely anonymous, borderless and freely circulated across borders.

DCEP does not rely on blockchain. At most, it can use some technologies of blockchain for the management of digital currency wallet addresses and the supervision of transaction information to ensure that transactions are traceable. .

Let’s look at the difference between DCEP and Libra

The digital currency Libra designed and led by Facebook, from a recent white paper It seems that the currency that has returned to centralization is different in that it corresponds to a basket of currencies such as the US dollar, the euro, the Japanese yen, the British pound and the Singapore dollar, so it has more obvious advantages in international trade payment and settlement.

Although Libra is private, not a sovereign currency, and does not have national credit support, Facebook has 2.3 billion monthly active users worldwide. It has stable and diversified payment circulation scenarios and extensive, cross-border The user base, if widely used, will have a substitution effect on the local legal currency.

The Chinese government has always been cautious in financial innovation, but it is ahead of other countries in digital currency. It is precisely because of the challenges of Bitcoin and Libra that they may bypass Monetary supervision affects the implementation effects of the central bank's monetary policy and foreign exchange policy.

DECP is part of future monetary sovereignty, which is its greatest significance at present. However, after many things are designed, their development deviates from the original intention. The biggest impact of DCEP on the future may not be its monetary aspect.

6/6. DCEP and planned economy

Judging from the technical details disclosed so far, the issuance and circulation process of DCEP involves "three centers":

Certification center: the central bank centrally manages DCEP organization and user identity information;

Registration center: records DCEP and corresponding user identities, and records turnover;

Big Data analysis center: analysis of anti-money laundering, payment behavior, regulatory control indicators, etc.

The concept of the scene mentioned at the beginning comes from the limited anonymity and transaction traceability features of DCEP. This is an additional attribute of digital currency, but if in the future If widely accepted, this feature is likely to change the shape of human society as a whole.

For example, in the first half of the year, in order to offset the impact of the epidemic on small and medium-sized enterprises, the state increased its efforts in providing low-interest credit to small and medium-sized enterprises. Although the central government emphasized not to flood Flood irrigation should be directed drip irrigation.

However, there is no name written on the money. The actual result is that, on the one hand, large companies ultimately get more money, and many companies that are not short of money return to the bank. Carry out risk-free arbitrage; on the other hand, some companies did not invest in production after receiving the money, but entered the stock market and real estate market, resulting in booming transactions in the real estate market.

This situation can be solved through technical means in the DCEP era. Each digital currency is essentially a smart contract, which can have some transaction terms attached to make it have specific use.

Judging from the currently disclosed plans, DCEP has investment and financing functions and can embed smart contracts. During the financing process, as long as certain conditions are met, the payment of funds can be realized, replacing The function of bank payment and settlement is provided. For example, when a bank issues development loans to real estate developers, smart contracts can be embedded, and the loans can be automatically billed based on the development progress.

In extreme cases, our future money contains some prohibited uses.

Every economic activity in modern society corresponds to the flow of currency. The essence of modern economy is currency. If the flow of a sum of money can be restricted, monitored and traced, all transactions records, the possibility of planned economy will be greatly increased.

In the past, the biggest obstacle to the planned economy was the separation of macro-instructions from micro-economic activities, similar to what we said earlier about financial policies guiding small and medium-sized enterprises and actual capital flows to large enterprises and capital markets. The contradiction is that DCEP includes all transaction data, additional smart contracts, and big data analysis, which greatly improves the accuracy of planning instructions.

Of course, there are also contradictions in the currency attached to the contract. The essence of currency is a central bank liability guaranteed by the national credit, which has unlimited legal liability, and the more attached conditions The more, the lower the value, and may even degenerate into valuable tickets and lose competitiveness.

However, for a big government, planned economy has an innate temptation.

If all this comes true, what will digital currency bring to human society? Is everything in order, society is full of order, and efficiency is greatly improved? Or are everyone's economic activities planned in advance and under constant surveillance?