China's digital currency (II): Q&As
The following are several articles that cover some hot-button questions about the digital RMB.
Key takeaways:
Digital currency will take up the market share of private payment services, such as Alipay or WeChat Pay, but both will likely coexist.
Digital currency poses risks to traditional business models for banks but opens up new opportunities.
Digital currency is anonymous for daily use, but still traceable, especially for large transactions.
Experts believe the digital RMB can boost the yuan’s internationalization.
【1】
Here is an interview with Huang Yiping, the director of the digital finance research center, Peking University
Q: Will digital RMB squeeze Alipay and Wechat Pay out of the market?
Huang:
这种担心其实有一定的道理。因为央行数字货币其实第一步就是电子支付……这个和微信支付及支付宝可能是有很大重叠度的。所以，将来会不会有一定的替代？我相信是会有的。但是会有多大程度的替代现在还不好说。
This concern is actually somewhat justified. Because the central bank digital currency is circulated through electronic payment…which may have a great overlap with WeChat Pay and Alipay. So, will there be some substitution in the future? I believe there will be. But it's hard to say how much substitution there will be.
但是，现在的移动支付方式是不是会被完全取代？我觉得也没那么简单，现在我们用移动支付，用微信支付和支付宝，很大程度上其实是对它所构建的一整套生态系统产生了依赖……将来央行数字货币投入使用之后是不是也会出现这样一套系统？这是我们值得考虑的。微信支付和支付宝对我们的吸引，不仅仅是它的低成本、普惠、便捷、普及度高，这些央行数字货币将来都可以实现，它对我们最大的吸引力是其（构建的）整套的生态系统。
However, will the current mobile payment method be completely replaced? I think it's not that simple, now we use mobile payment, using WeChat Pay and Alipay, to a large extent is actually dependent on the whole set of ecosystem it has built…Will there be such a system after the central bank's digital currency comes into use? This is something we should consider. The attraction of WeChat Pay and Alipay to us is not only its low cost, universality, convenience and high popularity, which can be realized by the central bank's digital currency in the future, but also its whole ecosystem, which is the biggest attraction to us.
另外一个变化，因为现在的央行数字货币可以授权很多机构来构建他们的电子钱包，举个例子，四大行也可以开始构建自己的电子钱包，这个时候其实会出现一个新的和移动支付竞争的机会，因为授权机构也可以设计一套钱包，跟支付宝、微信支付一样，但挑战是能不能建一套跟它一样（完善、便捷）的生态系统，这样才会有竞争力。所以，总体上来说，我不担心将来移动支付会被取代，我觉得移动支付会在竞争中更加完善、丰富。
Another change, because the central bank can now authorize many institutions to build their own electronic wallets, for example, the four major banks (BoC, ABC, ICBC, CBC) can also start to build their own electronic wallets, this time there will be a new opportunity to compete with mobile payments, because the authorized institutions can also design a set of wallets, the same as Alipay, WeChat Pay, but the challenge is whether they can build a set of the same (perfect, convenient) ecosystem. The challenge is to build an ecosystem that is as (well-developed and convenient) as as the current one is, so that it can be competitive. So, in general, I'm not worried that mobile payment will be replaced in the future, I think mobile payment will be improved and enriched by competition.
Q: Fake digital RMB and wallets have appeared in the market, what should we do in face of this challenge?
Huang:
央行数字货币很安全，但是很安全的背后将来就没有风险了吗？不会有黑客吗？不会有篡改吗？目前所有的这一套被认为是最安全的设计，它潜在的风险肯定是存在的。这其实也是我们测试的一个部分，希望将系统上线，然后看看有哪些问题。我们能做的其实就是尽量提高技术的壁垒，万一出现风险，我有控制这些风险的手段和办法。
Central bank digital currency is very safe, but is there no risk in the future? Will there be hackers? Will there be tampering? All of the current set of what is considered the most secure design, there are definitely potential risks to it. This is actually one part of our testing, hoping to bring the system online and then see what problems there are. What we can do is actually try to raise the technical barriers so that in case there are risks, there are means and ways to control those risks.
我相信央行和各个授权机构就一直在想办法做的，无非就是提高自己的技术能力。在这方面，其实微信支付和支付宝已经积累了非常好的经验。根据我看到的数字，他们的损失率要远低于国外的金融机构。这也是将来央行数字货币需要做的工作。
I believe that the central bank and the various authorized institutions have been trying to do nothing more than improve their technical capabilities. In fact, WeChat Pay and Alipay have accumulated very good experience in this area. According to the figures I have seen, their loss rate is much lower than that of foreign financial institutions. This is also what the central bank digital currency needs to do in the future.
Q: Many people worry that after the digital Rmb comes into circulation, the functions of commercial banks will be weakened, and even face the risk of financial disintermediation, what do you think?
Huang:
但是对商业银行来说，脱媒风险可能存在。但是央行设计的这一套央行数字货币，我们叫做DCEP的机制，只是替换流通中的现金，而不是M1（狭义货币）、M2（广义货币），不对央行数字货币支付利息，而且是双层运行机制，我觉得从一开始就是为了减少甚至避免对商业银行的脱媒。
For commercial banks, the risk of disintermediation may exist. But the central bank designed this set of central bank digital currency, we call DCEP mechanism, only to replace the cash in circulation, not M1 (narrow sense currency), M2 (broad sense currency), not to pay interest on the central bank digital currency.
Also the two-tier operation mechanism was designed to reduce or even avoid the disintermediation of commercial banks.
但是对商业银行将来会不会脱媒这一问题，也值得分析。我认为部分的替换是有可能的。我觉得脱媒在一定程度上是很难避免的。在短期内，我觉得这个问题可能不是特别需要担心，但长期来说确实（可能会）存在问题，因为我相信DCEP只是第一步，如果只是做这个，也许我们就没必要花那么大的精力推出央行数字货币了。
But the question of whether commercial banks will be disintermediated in the future is also worth analyzing. I think a partial replacement is possible. I think disintermediation is difficult to avoid to a certain extent. In the short term, I think this may not be a particular problem to worry about, but in the long term it does (may) be problematic, because I believe DCEP is just the first step, and if that's all we do, maybe we don't need to put so much effort into launching a central bank digital currency.
将来的金融体系一定会发生很多的改变，我们应该要有思想准备，我个人觉得央行数字货币如果能成功，会是一件大事情，不仅仅是日常生活中的支付，而是会对我们的支付体系，商业银行体系甚至对资本市场的运行都会产生影响。当然更重要的现在也是最期待的，就是将来也许可以助力人民币国际化。
The future financial system will definitely change a lot and we should be prepared for it. I personally think that if the central bank digital currency can be successful, it will be a big thing, not just for daily life payments, but it will have an impact on our payment system, commercial banking system and even on the operation of the capital market. Of course, what is more important now is also the most expected, that is, it may help RMB internationalization in the future.
Q: How will the digital RMB help with RMB internationalization?
Huang:
我的看法包括两点，第一点是不要认为央行数字货币一落地，人民币国际化就实现了，其实不是这样的。虽然你可以把央行数字货币随便打给伦敦的一个人，但如果这个货币没有国际化，它在国外是不被接受的，所以，首先要让人民币国际化。美元基本上做到了这样的功能，我们当然还有一定的距离。所以，央行数字人民币落地并不意味着货币就国际化了，这个是我们需要做额外的努力才能实现的。
My view includes two points. The first point is not to think that once the central bank digital currency is landed, the internationalization of the RMB is achieved, which is actually not the case. Although you can just wire a central bank digital currency to some random person in London, if the currency is not internationalized, it is not accepted abroad, so it is important to internationalize the RMB first. The U.S. dollar has basically done that, and we certainly have some distance to go. So, just because the central bank digital RMB has been rolled out doesn't mean the currency is internationalized, this is something we need to do extra work to achieve.
但是在过程当中，央行数字货币对于推动人民币国际化其实是有帮助的。举个例子，我们搞跨境贸易和投资结算，（如果）原来就是用人民币结算，需要银行转账或者现金，但现在用央行数字货币就会很方便，而且成本很低。将来在边贸上就会很快（被接受），因为对方本来就是接受人民币的，那效率就会大大提高。所以像这种情况下，我觉得对于推动人民币国际化是有帮助的，但是它本身不等于国际化的人民币。
But in the process, the central bank's digital currency is actually helpful in promoting the internationalization of the RMB. For example, if we do cross-border trade and investment settlement, (if) the original settlement is in RMB, it requires bank transfer or cash, but now it will be convenient and low cost to use the central bank digital currency. In the future, it will be quickly (accepted) in the border trade, because the other side is supposed to accept RMB, and then the efficiency will be greatly improved. So in cases like this, I think it is helpful to promote the internationalization of the RMB, but it is not the same as internationalizing the RMB itself.
【2】
On the question of anonymity, Xinhua released a story that specifically explained how anonymous the digital yuan will be.
According to Mu Changchun, the director of DCRI, the digital wallet is linked to a phonecard, instead of a bank account. Though a phone card can only be purchased with a personal ID, telecommunication companies are prohibited by law to reveal users’ personal info to the PBoC or any other third parties.
使用数字人民币不用绑定任何一张银行卡。而这一点，恰恰体现了数字人民币的“匿名”特性……但根据现行国家有关法律规定，电信运营商不得将用户信息披露给央行等第三方。因此，用手机号开立的数字人民币钱包对于央行和各运营机构来说，是完全匿名的。
There is no need to tie any bank card to use digital RMB. This reflects the "anonymity" of the digital RMB. ...... According to current laws, telecom operators are not allowed to disclose user information to third parties such as the central bank. Therefore, the digital RMB wallet opened with a cell phone number is completely anonymous to the central bank and the operators.
BUT, Mu added that only “small amounts” that sustains “daily use” are offered the shield of anonymity, but he did not specify the exact amount.
数字人民币可以在技术上实现小额匿名，仅用手机号就可以开立钱包。当然，这类钱包每日交易限额较低，只能满足日常小额支付需求。
Digital RMB can be technically anonymous in small amounts, and wallets can be opened using only a cell phone number. Of course, these wallets have low daily transaction limits and can only meet daily micro-payment needs.
This limited anonymity is called “controllable anonymity”, Mu says the reason that digital RMB is not given full anonymity is the fear that it may be used in illegal transactions.
“可控匿名”作为数字人民币的一个重要特征，一方面要保障公众合理的匿名交易和个人信息保护的需求；另一方面也要防控和打击洗钱、恐怖融资、逃税等违法犯罪行为，维护金融安全的客观需要。
As an important feature of digital RMB, "controlled anonymity" is necessary to protect the public's reasonable needs for anonymous transactions and personal information protection, and to prevent, control, and combat money laundering, terrorist financing, tax evasion, and other illegal and criminal acts, and to maintain financial security.
How will consumer data privacy be protected? The report says digital wallets will only push encrypted data to e-commerce platforms, or other receivers, to prevent the payee from acquiring the payer’s personal information.
用户支付信息将会被打包加密处理后，用子钱包的形式推送至电商平台。平台无法直接获取用户个人信息，这有力地保证了用户核心信息的隐私保护。其实，不只是电商平台，就连提供服务的银行、线下收款的商户、收取转账的个人等都不会获取支付用户的个人信息，因为数字人民币钱包之间的交易已通过技术和制度实现了匿名化处理。穆长春坦言，数字人民币对用户隐私的保护，在现行支付工具中是等级最高的。
User payment information will be packaged and encrypted, and then pushed to the e-commerce platform in the form of a sub-wallet. The platform has no direct access to users' personal information, which strongly ensures the privacy protection of users' core information.
In fact, not only e-commerce platforms, but also banks providing services, merchants receiving offline payments, and individuals receiving transfers will not have access to the personal information of payment users, as transactions between digital RMB wallets have been anonymized through technology and systems.
Mu Changchun says that digital RMB has the highest level of protection for user privacy among current payment tools.
The report also touched on the issue of stolen money, can they be recovered?
In the situation of a possible crime, law enforcement may obtain relevant evidence from financial and telecom businesses, to piece together the puzzle. Furthermore, for big transactions, more methods of verification will be needed to prevent dubious actions.
尽管数字人民币钱包用手机号即可开立，但并非不能打击犯罪行为。金融部门、电信运营商分别掌握一部分数据，一旦遇到犯罪行为，可以把相关证据线索交给司法机关，由执法部门按图索骥。
另外，数字人民币钱包自身采用了分级分类的设计，根据客户身份识别程度可开立不同级别的数字钱包。小额支付可以做到完全匿名，但如要进行大额支付，则需要升级“钱包”，按要求提供相关信息要素，以此防范大额可疑交易风险。
穆长春表示，数字人民币采取“小额匿名、大额可溯”的设计，如果发生利用数字人民币的电信诈骗，能够帮助老百姓把钱追回来，守护老百姓的财产安全。
Although a digital RMB wallet can be opened with a cell phone number, it is not impossible to fight crime. The financial sector and telecom operators hold a portion of the data separately, and once they encounter a crime, they can hand over the relevant evidence clues to the judiciary, and law enforcement can follow the crumb.
In addition, the digital RMB wallet itself is designed with a hierarchical classification, and different levels of digital wallets can be opened according to the level of customer identification. Small payments can be made completely anonymously, but for large payments, you need to upgrade your "wallet" and provide relevant information elements as required to prevent the risk of large suspicious transactions.
Mu said that the digital RMB is designed to be "anonymous for small amounts and traceable for large amounts", which can help people recover their money and guard their property if telecom fraud occurs using the digital RMB.
【3】
What changes will China’s digital RMB bring about? Li Lihui, former president of the Bank of China outlined four changes: the structure of the payment market, the competition landscape of commercial banks, how the currency market is regulated, and the global currency structure.
一、改变支付市场的格局
数字人民币将在两个方面改变支付市场的格局。一是在市场化支付工具主导的市场中增加官方的支付工具，预计未来5-10年，数字人民币将于微信支付、支付宝、云闪付、银行卡等支付工具并行；二是在法定的货币形态中，增加数字人民币，数字人民币将在某些场景中替代人民币现钞，但人民币现钞不会彻底退出市场。
1、Changing the landscape of the payments market
The digital RMB will change the payment market landscape in two ways. The first is to add official payment instruments to the market dominated by market-based payment instruments. It is expected that in the next 5-10 years, digital RMB will be parallel to payment instruments such as WeChat Pay, Alipay, Cloud Flash, and bank cards; the second is to add digital RMB to the legal tender form. Digital RMB will replace RMB banknotes in certain scenarios, but RMB banknotes will not be completely withdrawn from the market.
二、改变银行业竞争的格局
央行数字货币技术上可以脱离网络、脱离银行、脱离账户执行价值转移。这将导致银行账户“松绑”，甚至可以不再需要商业银行账户，不再需要商业银行中介。金融消费者一旦减少了对银行账户的依赖，就可以更加自由地选择金融服务和金融机构，金融竞争将更加充分。金融机构过去依赖规模化经营才能获得的成本管理和获客能力优势，未来将在很大程度上取决于数字技术创新和应用的能力。这将改写金融市场竞争的格局。
2、Changing the landscape of competition in the banking industry
The central bank digital currency can technically perform value transfer without the internet, the bank, or an account. This will result in the "unbundling" of bank accounts, even eliminating the need for commercial bank accounts and commercial bank intermediaries. Once financial consumers are less dependent on bank accounts, they will be freer to choose their financial services and financial institutions, and financial competition will be more adequate. The advantages of cost management and customer acquisition capabilities that financial institutions used to rely on scale operations to gain will depend largely on the ability to innovate and apply digital technologies in the future. This will rewrite the landscape of financial market competition.
三、改变货币市场监管的格局
中央银行可以拥有实时、完整、结构化的央行数字货币流通数据，有利于实现货币供应总量的精准调控。央行数字货币资金信息流信息可以实时观察、全程追踪，从反腐败、反洗钱、反恐融资、反逃税的角度看，能够达到更好的管控效果。
中央银行拥有货币市场调控更加直接的权力，但可能由此承担更加直接地责任。经济危机发生时，信用等级较低的商业银行可能出现难以控制的数字货币存款挤兑，并引起连锁效应。央行必须向商业银行提供更多的流动性支持。
3、Changing the landscape of money market regulation
The central bank can have real-time, complete, and structured data on the circulation of the central bank's digital currency, which is conducive to the precise regulation of the total money supply. Central bank digital money information flow can be observed in real-time and tracked throughout the process, which can achieve better control effects from the perspective of anti-corruption, anti-money laundering, anti-terrorist financing, and anti-tax evasion.
The central banks have more direct power to regulate the money market, but may thus assume more direct responsibility. In the event of an economic crisis, commercial banks with lower credit ratings may experience a run on digital currency deposits that is difficult to control and causes a ripple effect. Central banks must provide more liquidity support to commercial banks.
四、改变全球货币体系的格局
数字货币在未来的全球数字经济竞争中将居于核心地位。对于发行央行数字货币的国家，数字货币的国际化将构成对货币政策设计和流动性控制的挑战；而对于被他国数字货币替代的国家，本国的主权货币地位将面临威胁，货币政策传导的效应将被削弱，金融的稳定性风险必将放大。
我国的政体实力目前落后于美国，但经济发展的品质和速度领先于美国等西方国家。全球性的数字人民币，有利于维护我国的货币主权，有利于保护我国的金融安全，有利于进一步提升我国的国家实力。
4、Changing the landscape of the global monetary system
Digital currencies will be at the heart of the global digital economy competition in the future. For countries issuing central bank digital currencies, the internationalization of digital currencies will pose a challenge to monetary policy design and liquidity control; while for countries where other countries' digital currencies dominate, their currency sovereignty will be threatened, the effect of monetary policy transmission will be weakened, and the risk of financial stability will be amplified.
China's overall strength currently lags behind that of the United States, but the quality and speed of economic development are ahead of the United States and other Western countries. A global digital RMB is conducive to maintaining our monetary sovereignty, protecting our financial security, and further enhancing our national strength.
This newsletter is penned by Yang Liu, with contributions by Wencai Zhao.