New currency war: starting from the central bank’s digital currency

The digital economy is becoming an important engine leading the global economic and social transformation and promoting the high-quality development of my country’s economy. The central bank’s digital currency is the cornerstone of the development of the digital economy, and it is also a high ground for global economic and financial competition in the future.

Since 2020, the development momentum of global central bank digital currencies has been in the ascendant. Many countries in the world are actively promoting the research and experimentation of central bank digital currencies, and the development of China’s digital renminbi has also attracted widespread attention.

Many countries in the United States and Europe are actively studying and promoting central bank digital currencies

The exploration of the global central bank digital currency (Central Bank Digital Currency, referred to as CBDC) is in full swing. A survey of central banks by the Bank for International Settlements in early 2021 found that 86% of central banks are actively studying the potential of CBDC, and 60% of central banks are actively studying the potential of CBDC. To test this technology, 14% of central banks are deploying related pilot projects.

Judging from recent developments, international discussions on central bank digital currencies have become more intense, and many sovereign countries represented by the United States and Europe are actively studying and advancing related work.

On April 19, UK time, the Bank of England and the UK Treasury announced the joint establishment of the Central Bank Digital Currency Working Group to coordinate the development of the central bank’s digital currency exploration work. The central bank digital currency will be used as a new form of digital currency issued by the Bank of England for households and businesses. Similar to the digital renminbi, the central bank digital currency of the United Kingdom will coexist with cash and bank deposits, rather than replacing them.

The Bank of England also mentioned in its previous statement on the central bank’s digital currency that the government and the Bank of England have not yet made a final decision on whether to introduce CBDC in the UK, and will further communicate with stakeholders on the potential benefits of introducing CBDC. Risk and feasibility. At the same time, the Bank of England will also consider the impact of digital currency on data security and user privacy.

The Bank of England Digital Currency Working Group will be co-chaired by Jon Cunliffe, Deputy Governor of the Bank of England, and Katharine Braddick, Director of Financial Services at the Department of Treasury. The main goal of the working group is to collaboratively explore the goals, usage scenarios, opportunities and risks of the UK digital currency; provide clear guidelines for the establishment of digital currency goals, and conduct a comprehensive and rigorous assessment of the overall goals; monitor the development of international central bank digital currencies . The British Chancellor of the Exchequer Rishi Sunak referred to the Bank of England’s digital currency as “Britcoin”.

In addition to the United Kingdom, Federal Reserve Chairman Jerome H. Powell also reiterated in a speech at a conference on March 18 that the Federal Reserve attaches great importance to the issuance of digital currency in US dollars. The Federal Reserve is currently working with researchers from the Massachusetts Institute of Technology (MIT) on a joint project to carefully evaluate the feasibility of the digital dollar, including its impact on financial system inclusiveness and potential cybersecurity threats. Jerome H. Powell also said that the United States does not have to be the first country to use CBDC, but if it does, it must do it well. So far, the Fed is still quite cautious about developing a digital currency system dominated by the central bank.

Various European countries are also beginning to research and issue central bank digital currencies. The Riksbank (Riksbank) stated on April 6 that in the coming year, banks will test the e-krona, a digital currency proposed by the central bank, to observe the currency’s performance in the actual processing of commercial and retail payments. The Riksbank stated that so far, the trial of e-krona has only been simulated within the Riksbank, and the scope will be expanded in the next phase to include participants such as commercial banks.

At the same time, the Riksbank released a special report on the first phase of the e-krona pilot project, which stated: “Distributed ledger technology (DLT) and blockchain technology provide new possibilities for e-krona, but it has The level of security required by digital currencies and the ability to scale retail payments are still to be studied.” At present, the Riksbank has not yet made a final decision on whether to issue digital currencies and which technologies to use.

Digital RMB will make rapid progress in multiple fields in 2021

China is one of the first countries in the world to conduct digital currency research. Since 2014, the People’s Bank of China has officially launched research on the digital renminbi (e-CNY). Since 2020, the development of digital renminbi has accelerated. In 2021, rapid progress will be made in retail, wholesale, and cross-border payments.

At the end of 2019, digital renminbi will be piloted in Shenzhen, Suzhou, Xiong’an New District, Chengdu and future Winter Olympics scenarios. By October 2020, six pilot testing areas will be added in Shanghai, Hainan, Changsha, Xi’an, Qingdao, and Dalian.

In addition to the increase in the number of people who use digital renminbi, the increase in pilot areas has brought about continuous renovation of the digital renminbi’s “flowering method”. Digital renminbi red envelopes, full discounts, scan code payments, offline wallet payment experiences, etc. are emerging in endlessly. The application scenarios of digital renminbi gradually cover life payment, catering services, transportation, shopping and consumption, government services and other fields.

Li Bo, deputy governor of the People’s Bank of China, stated at the Boao Forum for Asia on April 18 that the pilot digital renminbi has been quite successful so far. He said that he is considering allowing more scenarios and more cities to conduct pilot projects, covering more use scenarios in the pilot projects, and further strengthening the construction of the ecosystem. It is necessary to further build the digital renminbi infrastructure, improve the security and reliability of the system, and build a legal and regulatory framework to supervise the digital renminbi business.

On April 25, the 4th Digital China Construction Summit with the theme of “stimulating new kinetic energy of data elements and embarking on a new journey to digital China” opened in Fuzhou, Fujian Province. The special exhibition of digital renminbi at the summit attracted a lot of attention.

Among them, JD Technology demonstrated its supply chain + scenario + technical advantages in the digital RMB pilot, and exclusively provided digital RMB online + offline immersive full-experience services, as well as the use of digital RMB for employee compensation and supply Chain partners conduct pilot applications and digital solutions for B2B enterprise payments. Huawei demonstrated its digital renminbi technology solutions and new breakthroughs in scenario innovations in various fields such as life payment, transportation, shopping and consumption, and government services.

In addition to some well-known companies exhibiting new technologies and new scenarios for digital renminbi, the Digital Currency Research Institute of the People’s Bank of China, together with major financial institutions such as Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, Construction Bank, Bank of Communications, Postal Savings Bank, and Industrial Bank, jointly participated in the exhibition. A large number of the latest achievements of financial technology and digital renminbi.

For example, on the basis of strictly following the basic principles of the People’s Bank of China, the Postal Savings Bank of China has created an open, shared, and intelligently interconnected digital renminbi core system, and established a digital renminbi supply, circulation and operation system that reflects the characteristics of the Postal Savings Bank. Inclusive finance, universal postal services, and local life scenarios, through digital renminbi to better serve the “three rural areas”, urban and rural residents and small and medium-sized enterprises, and provide customers with convenient, efficient and high-quality digital renminbi services. ICBC demonstrated the digital renminbi exchange machine and the digital renminbi smart machine. The staff demonstrated the two-way exchange of digital renminbi and cash by scanning the QR code on the latest ICBC ATM machine.

The international community’s attention to China’s digital renminbi

During the Song Dynasty, when European countries were still using gold and silver coins, China had invented and started using paper money. Today, China has once again become a leader in currency reform. When European countries have not yet decided whether they should introduce digital currencies, China has already launched digital renminbi pilot projects in multiple cities, and its application scenarios also cover multiple areas.

In an article entitled “Central Banks Are Studying Digital Currency” published in the French newspaper Le Monde in June 2020, Harvard University digital currency expert Kumar said that China’s digital renminbi can counter the hegemony of the U.S. dollar in the international payment system. The digital renminbi bypasses the economic sanctions imposed by the United States using the hegemony of the U.S. dollar. The article believes that this is also the reason for the European Central Bank to study digital currencies. For example, the central bank digital currency used by Bank of France for interbank settlement will help strengthen the euro’s international status.

The United States is also constantly paying attention to various measures of China’s digital renminbi plan, and is strengthening its review of China’s digital renminbi plan. Some officials in the Biden administration are worried about whether the digital renminbi will have an impact on the U.S. dollar, and want to know how the digital renminbi will be distributed and whether it can also be used to circumvent US sanctions; but some officials said they are not too worried about this issue, for example US Chairman Mark Sobel of the Forum of Official Monetary and Financial Institutions said that China’s financial system is too “fragile” and does not pose a real threat to the status of the US dollar as a global reserve currency.

According to Bloomberg News, a recent report by the Director of National Intelligence of the United States pointed out that the degree of threat of any foreign digital currency to the core position of the US dollar in the global financial system will depend on its regulatory requirements. The renminbi’s share of global foreign exchange deposits is only slightly more than 2%, while the U.S. dollar is about 60%. As China adheres to strict capital controls, policy decisions rather than technological development are the necessary factors to promote the internationalization of the RMB.

Li Bo, deputy governor of the People’s Bank of China, once said that the current development focus of the digital renminbi is to promote domestic use. The internationalization of the renminbi is a natural process, but the goal of renminbi internationalization is not to replace the U.S. dollar. On the contrary, its goal is to allow the market to make choices to further facilitate international trade and investment.

Author/ Translator: Jamie Kim
Bio: Jamie Kim is a technology journalist. Raised in Hong Kong and always vocal at heart. She aims to share her expertise with the readers at blockreview.net. Kim is a Bitcoin maximalist who believes with unwavering conviction that Bitcoin is the only cryptocurrency – in fact, currency – worth caring about.