Since the People’s Bank of China took the lead in launching legal digital currency research and development in 2014, 36 central banks around the world have released central bank digital currency plans. So far, some technical details may still be controversial and discussed. This article points out that only with a correct strategic direction and an open technological strategy can the digital renminbi have excellent quality and stand out in the future competition with digital dollars, digital euros, and digital yen.

Source / Tsinghua Financial Review Text / Yao Qian, Director of the Science and Technology Regulatory Bureau of China Securities Regulatory Commission

Central Bank Digital Currencies (CBDC) is a brand new thing. The understanding of it is a dynamic and evolving process. Since the People’s Bank of China took the lead in launching legal digital currency research and development in 2014, 36 central banks around the world have released central bank digital currency plans. So far, some technical details may still be under constant disputes and discussions, such as account-based or token-based, and whether the attitude towards smart contracts is prudent or positive, etc. However, after several years of exploration and experimentation, some principled consensus is gradually being formed , Some of them deserve our attention and consideration.

Will the CBDC era be far away?

The attitude of mainstream central banks in the world towards central bank digital currencies has always been more cautious and conservative than central banks in emerging markets and developing countries. In September 2018, Mario Draghi, then President of the European Central Bank, stated that due to the lack of robustness of basic technology, the European Central Bank and the euro system have no plans to issue central bank digital currencies. The Governor of the German Central Bank, Jens Weidmann, stated at the Bundesbank seminar in May 2019 that the introduction of the central bank’s digital currency may destabilize the financial system and increase the risk of bank runs. In October 2019, the Governor of the Bank of Japan Haruhiko Kuroda stated that he did not consider plans to issue central bank digital currencies. On November 20, 2019, Jerome Powell, Chairman of the Federal Reserve Board of the United States, wrote to two members of the Financial Services Committee of the House of Representatives of the United States Congress, reiterating that the United States currently has no plan and need to issue a central bank digital currency.

But in 2020, the attitudes of mainstream central banks in the world, such as the European, American, and Japanese central banks, have quietly changed. On October 19, 2020, Fed Chairman Powell stated at the International Monetary Fund (IMF) annual meeting, “The Federal Reserve is committed to carefully, earnestly, and comprehensively assessing the potential costs and costs of the central bank’s digital currency to the U.S. economy and payment system. “Earnings”, this is the first time Powell has shown a positive attitude towards central bank digital currencies. In October 2020, the European Central Bank released a report on the digital euro, stating that it will launch a digital euro when necessary. The Central Bank of Japan followed suit and released the digital yen report and proposed a digital yen experiment plan. The most surprisingly bold move is that on March 27, 2020, the United States introduced a $2.2 trillion stimulus plan bill. In its first draft, it proposed to directly issue cash subsidies to related households through digital dollar wallets, and gave detailed figures. Dollar design. Although the final draft has been deleted, the digital dollar occasionally shows up and is amazing.

The main reasons that prompted the European, American, and Japanese central banks to change their attitudes from cautious to positive are as follows: First, the epidemic. The European Central Bank believes that under the new situation of the new crown epidemic, people’s preference for contactless payment methods may rise. Therefore, in order to cope with the decrease in cash usage, the digital euro can be introduced as another form of public funds and payment methods. . The United States hopes to use the digital dollar as a “helicopter money-spreading tool”, trying to repair household balance sheets through rapid government transfers and fight the economic impact of the epidemic. The second is to deal with new currency competition. Central banks in many countries are developing their own central bank digital currencies, while private institutions, including large technology companies, are also developing new payment solutions based on distributed ledger technology (DLT), such as global stablecoins. This may bring about currency substitution and challenge the status of international currencies such as the euro, the US dollar, and the Japanese yen. The third is to meet the needs of economic digitization. The Digital Euro report pointed out that although cash is still the main means of payment, with the emergence of new technologies and consumers’ increasing demand for immediacy, European citizens’ payment methods are changing. Therefore, in order to ensure that consumers continue to be Restricting access to central bank currency and meeting its needs in the digital age, the European Central Bank Council decided to advance work on the issuance of digital euros. In addition, the personal attitude and style of the leader is also an important factor influencing the policy shift, which is most obvious in the European Central Bank. In November 2019, Christine Lagarde served as President of the European Central Bank. In fact, Lagarde paid great attention to the potential of digital currencies when he was the president of the International Monetary Fund. After taking office, Lagarde made it clear that the European Central Bank should be in a leading position in the field of central bank digital currencies, which greatly reversed the European Central Bank’s attitude towards central bank digital currencies.

It is foreseeable that the entry of mainstream central banks in the world such as the European, American, and Japanese central banks will greatly accelerate the research and development of global central bank digital currencies. According to a questionnaire survey conducted by the Bank for International Settlements (BIS), in the next three years, the central bank issuing retail CBDC may cover one-fifth of the world’s population.

Is synthetic CBDC a real CBDC?

The 100% reserve reserve model is the central bank digital currency model advocated by some scholars in recent years, and the Hong Kong note-issuing bank model is cited as its practical basis. They believe that the agency operating agency deposits 100% of the reserve reserve with the central bank, and then issues a corresponding amount of digital currency on its books, which can be regarded as the central bank’s digital currency. Tobias Adrian and other IMF economists call it Synthetic Central Bank Digital Currency (SCBDC). Practical experience shows that the author also tends to believe that synthetic CBDC not only brings technical complexity (inter-institutional CBDC circulation, in addition to the update of the CBDC account book of the agency operating agency, but also the handling of the corresponding reserve account of the central bank. For clearing and settlement, the CBDC system is highly coupled with the traditional account system), and it increases the difficulty of the central bank’s management and control (in the interval between the clearing and settlement of the reserve account, the operating agency may play a time difference and inflate the sCBDC). If the synthetic CBDC is the real central bank digital currency, then my country’s third-party payment institutions deposit 100% of the reserve funds in the central bank, and the funds in their virtual accounts can already be regarded as central bank digital currencies. If this is the case, China has long been the first country in the world to realize the digitization of legal currency. But in fact, no one regards the funds in Alipay and WeChat Pay as the central bank’s digital currency. This is because it is not a direct liability of the central bank. Even if it is backed by a 100% reserve fund, it is still a liability of private institutions and cannot be completely equivalent to the central bank’s currency. From this perspective, there seems to be a subtle difference in concept between legal digital currency and central bank digital currency.

In October 2020, the Bank for International Settlements released a research report “Central Bank Digital Currency: Basic Principles and Core Features”. The report was jointly researched and completed by the Bank of Canada, the Bank of Japan, the Riksbank, the Swiss National Bank, the Bank of England and the Federal Reserve, as well as the European Central Bank and the Bank for International Settlements. It is titled “Synthetic CBDC is not CBDC”, and a column expounds their views. The report states, “These payment service providers act as intermediaries between the central bank and the end user. If the regulatory framework can ensure that the liabilities of these providers are always matched by the central bank’s funds, these liabilities can enjoy some of the characteristics of the CBDC issued by the central bank. But these liabilities are not CBDCs, because end users do not have claims on the central bank. They are essentially a narrow bank currency. Apart from not being a CBDC by definition, these liabilities also lack some of the key features of central bank currencies. Payment service provision People benefit from a strong network effect, which may lead to concentration and monopoly or fragmentation. The central bank aims at public policy, not profit. This allows it to remain neutral when providing services to users, thus forming an open and inclusive system. Another One difference is liquidity. The central bank can expand the balance sheet in a short period of time based on potential demand and create additional liabilities. Payment service providers cannot do this, because every liability must be related to the funds held by the central bank. Matching. This makes CBDC more liquid than private provider liabilities that rely on central bank funds to match. For narrowly defined bank currencies, public concerns about the existence of potential matching funds may cause concerns about the value of their liabilities. Suspicion, which leads users to sell them at a discount to the face value of the currency. This will not happen to CBDC.”

In October 2020, the European Central Bank released the Digital Euro Report, expressing the same view. The report pointed out that the digital euro is a liability of the euro system and a risk-free central bank fund. The digital euro can be exchanged to the same degree as other forms of the euro (such as banknotes, central bank reserves, and commercial bank deposits). The report emphasizes that “the amount of central bank currency issued in the form of digital euros should always be under the full control of the euro system” and “the currency issued based on any private entity’s claims is not a CBDC, even if it is reserved by the euro system. Full support”. The same point of view also appeared in the digital yen report released in October 2020. The report stated: “Private companies issuing private digital currencies backed by central bank liabilities (such as central bank deposits) and guaranteed by the central bank’s reputation are not CBDCs because they are not issued by the central bank.” March 2020 US $2.2 trillion stimulus The digital dollar plan proposed in the first draft of the planning bill also emphasizes that the digital dollar is a direct liability of the Federal Reserve.

Where are the application scenarios of CBDC?

The central bank’s digital currency is a new type of payment tool, which may bring a certain substitution to existing payment tools. Some countries emphasize the replacement of cash in circulation (M0), and some countries or regions believe that it should not be emphasized to replace M0. For example, the Digital Euro report believes that the digital euro should not replace cash, but only a supplementary payment method. European citizens should decide whether to use the digital euro instead of cash. The digital yen report also emphasized that as long as there is a public demand for cash, the central bank will continue to provide cash. In this sense, CBDC will not replace cash, but will coexist with cash and become a supplement to cash.

Even the Digital Euro report emphasizes that the central bank’s digital currency should not be a substitute for private payment methods. It pointed out that “the central bank’s issuance of a digital euro should neither prevent nor exclude effective private digital retail payment solutions in the euro zone”.

The relatively rapid progress of central bank digital currency experimental projects, such as the Ubin project in Singapore, the Jasper project in Canada, and the Stella project jointly launched by the European Central Bank and the Bank of Japan, basically continue “from wholesale payments to bond payment (DVP). Then to the experimental idea of ​​cross-border payment. The domestic retail payment scenario does not seem to be the focus of their most attention. They proposed to avoid direct competition between CBDC and domestic private payment tools. The Digital Euro report emphasized that the issuance of the Digital Euro will not introduce another end-user solution to the already diversified European retail payment landscape. They see CBDC only as a supplement to domestic private payment tools under extreme conditions, such as forming an emergency mechanism together with cash in the event of a natural disaster, so that even if there is no private solution, the public can continue to use electronic retail payments (such as digital euros). Or become a transfer payment tool for government emergency assistance (such as digital dollars).

A questionnaire survey conducted by the Bank for International Settlements shows that improving payment efficiency and financial inclusion are the main motivations for retail CBDCs. Compared with developed economies, developing countries have stronger motivations for researching retail CBDCs. It is easy to understand that the domestic retail payment system of advanced economies is relatively mature and can better meet the public’s retail payment needs. The marginal improvement of the central bank’s digital currency for domestic retail payment is relatively limited. Therefore, their central bank digital currency experiment goal is more to improve and perfect the international payment system and financial market infrastructure.

Cross-border payment is a pain point of the existing payment system.

First, the international payment standards are not uniform, which affects the interoperability between systems and the fluency of transfers;

The second is that cross-border payment involves a series of system operations that are not completely synchronized, and one operation may succeed and another operation may fail, which may cause credit risk and settlement risk;

The third is the high cost, which is about 10 times the average domestic payment cost;

Fourth, it takes a long time and requires a series of business operations by multiple correspondent banks. Cross-border payments sometimes take several days or even longer;

Fifth, the transparency is low, users cannot foresee the cross-border payment process and completion time, and it is difficult to carry out effective liquidity management;

Sixth, the time zones of various countries are different, and the opening hours of the Real-Time Gross Settlement System (RTGS) in different countries are inconsistent, which may cause cross-border payments to stagnate in one country for a long time, waiting for the country’s RTGS system to open.

Digital currency based on distributed ledger technology may solve the pain points of existing cross-border payments. The Libra 1.0 white paper opens with a clear meaning: “Libra’s mission is to build a simple, borderless currency and financial infrastructure that serves billions of people.” This declaration touched the nerves of central banks, and many central banks It is actively exploring the use of CBDC to improve cross-border payments. The fourth stage of the Ubin project in Singapore successfully demonstrated that even if there is no third party mutually trusted by both jurisdictions, based on the hash time lock technology, cross-border and cross-currency atomic transactions can be realized on the distributed ledger.

In the cross-border payment scenario, “strengthening” the central bank’s digital currency has even risen to the national strategy.

Global stablecoins such as Libra and central bank digital currencies being developed by other countries have made the United States “vigilant” against the challenge of new currency technology to the status of the US dollar. The digital dollar project white paper reminds that “the United States cannot take the dominance of the dollar in the international financial system for granted.” It bluntly pointed out that “if the international payment system can bypass Western banks that are closely linked to dollar reserves economically and geopolitically, then as the core and unified tool of our foreign policy, the effectiveness of economic sanctions will be seriously threatened. This means The United States’ global leadership position, especially in the exercise of soft power, will be at risk. In addition, if foreign central banks no longer need U.S. dollars, they will not maintain high-scale U.S. dollar reserves, and international funds to purchase U.S. government bonds will decline. , Thereby restricting U.S. fiscal policy and raising interest rates for the government and consumers.” Therefore, it emphasizes that “in order for the U.S. dollar to maintain its reserve currency status, the digital dollar must bring the long-term values ​​of U.S. economic stability, personal freedom and privacy, free enterprise and the rule of law into The Digital Age” suggested that “the United States should and must play a leading role in this new wave of digital innovation.” The Digital Euro Report also listed “maintaining the global reputation of the Euro” as one of its motivations for issuing a digital Euro.

Another important application area of ​​the central bank’s digital currency is to improve the existing financial market infrastructure and develop more open, flexible and efficient delivery Versus Payment (DVP). There is no safer currency than central bank currency. Settlement in the currency of commercial banks still has credit risk and liquidity risk exposure. The finality of securities settlement can only be guaranteed by using central bank currency to settle. The premise is that the counterparty must open an account with the central bank. But in reality, not everyone can use central bank payment systems such as Fedwire, the Fed’s system for transferring large payments, and China’s High Value Payment System (HVPS). For example, China Securities Depository and Clearing Corporation has not yet connected to the payment system of the People’s Bank of China. If the central bank digital currency is issued, it will provide a more inclusive central bank currency accessibility, allowing more participants to use the central bank currency for settlement more frequently, thereby reducing credit risks and costs. In addition, the central bank’s digital currency can also be fully integrated with the new DLT-based financial market infrastructure to promote social cost savings and efficiency. The third stage of the Ubin project in Singapore shows that the new DLT-based bill payment process can flexibly compress the settlement cycle and simplify the post-transaction settlement process. For example, it supports the securities industry to shorten the settlement cycle from T+3 to T+2, thereby reducing potential Risk exposure. In addition, DVP smart contracts can enable consistent and consistent execution of rights and obligations, thereby increasing investor confidence and reducing market compliance costs.

Can the narrow banking influence be avoided?

Regarding the central bank’s digital currency, there has always been a concern that due to the nature of digitalization, bank deposits may be transferred to the central bank’s digital currency quickly and on a large scale during a bank crisis. Ben Broadbent, deputy governor of the Bank of England, was the first to express such concerns. He pointed out that when the economy is in a recession, when there are other options, bank deposits are easier to transfer to CBDC, and the possibility of banks obtaining financing from the market will also decrease. If the central bank’s balance sheet only expanded to non-bank financial institutions without involving non-financial institutions, the above problems would not arise. But if the central bank’s balance sheet expands to include businesses and households, and the CBDC and bank deposit accounts become more and more similar, the problem will become serious.

In order to buffer the impact of CBDC on the existing banking system, and to protect the existing system investment of commercial banks to the greatest extent, the author once proposed in the article “Digital Currency and Bank Accounts” in 2017 based on bank accounts and digital currency wallets. The design idea of ​​layering and using. That is, in the traditional account system of commercial banks, the attributes of digital currency wallets are introduced, so that both existing electronic currency and digital currency can be managed under one account. Since the account bank is still substantively managing customers and accounts, it will not cause commercial banks to be channelized or marginalized. At the beginning of 2020, the digital dollar plan in the first draft of the US$2 trillion economic stimulus bill proposed a “pass-through digital dollar wallet” concept, which is a digital wallet or account operated by a member bank for an individual agent. To this end, each member bank should establish and operate a separate legal entity dedicated to holding assets and liabilities related to the “passing digital dollar wallet”, but these assets and liabilities shall not be regarded as member banks or their branches Assets or liabilities. This design is actually the same as the author’s idea.

The question associated with the aforementioned narrow banking impact is whether the CBDC accrues interest. Many people have doubts about the central bank’s digital currency interest calculation, worrying that interest calculation will trigger the transfer of deposits from commercial banks to the central bank, further aggravating the narrow banking impact. The author believes that the central bank digital currency is not a perfect substitute for bank deposits, and measures can be taken to increase the friction and cost of the conversion of bank deposits to central bank digital currencies, such as controlling the large holdings of central bank digital currencies and the transfer of bank deposits. The central bank imposes limits on daily transfers of digital currencies, imposes fees on abnormal CBDC large balances, etc.

In recent years, central banks seem to have no longer been so “fear” about the narrow banking impact of CBDC. The digital dollar program directly proposes to accrue interest on the digital dollar. Although the digital euro report emphasizes that the risks associated with the sudden transfer of funds from bank deposits to the digital euro should be avoided, it does not oppose the calculation of interest on the digital euro, and proposes a so-called tiered interest calculation system that applies variable interest rates to different digital euros. Holding interest is calculated to reduce the potential impact of the digital euro on the banking industry, financial stability, and monetary policy transmission. The digital euro report even uses CBDC interest calculation as a possible future monetary policy tool option. It pointed out that the central bank’s digital currency can help eliminate the zero lower limit of policy interest rates, thereby increasing the policy options available in the event of a crisis in the context of cash shortages. Although it is not yet clear whether the digital euro can become a tool to strengthen monetary policy, it may have this role in the future based on further analysis or due to the development of the international financial system. If this happens, variable digital currency interest rates will become the monetary policy option of the European Central Bank.


Compared with technical details, the strategic direction is more important. The wrong direction will not only waste social resources, but also delay strategic opportunities. Based on the current new pattern of global central bank digital currency experiments, we must not only fully feel the sense of crisis of “time is not waiting”, but also draw useful strategic enlightenment from it. At the same time, we must also learn flexible and inclusive technical ideas, not constrained to a certain preset Path, try various schemes, models and ideas as much as possible, compare with many parties, and explore the best solutions in different scenarios. Only with a correct strategic direction and an open technological strategy can the digital renminbi possess excellent quality and stand out in the future competition with the digital dollar, digital euro, and digital yen.