Zhou Xiaochuan, President of China Financial Society and former president of the people’s Bank of China, said in his speech at the 2022 Tsinghua Wudaokou global financial forum that if a third-party institution issues currency, it should evaluate whether it meets high standards; Take the cash issuing behavior of commercial banks as an example, including high capital adequacy ratio; A reserve is required; Deposit insurance mechanism; Strong supervision and corporate governance.
Zhou Xiaochuan said that at present, many attempts to innovate digital currency are aimed at “stabilizing currency”, and its stability depends on the support behind it.
“Large technology companies and technology finance companies have great prospects in the payment industry, but they should pay attention to integrity, not be clever, improve their quality and keep up with high standards.” Zhou Xiaochuan said.
In terms of digital RMB, Zhou Xiaochuan said that the Central Bank of China stressed that the research and development of digital currency is to replace M0, which shows that it wants to focus on the retail link, that is, it hopes to be applied in the retail link, especially to provide greater convenience with the help of the Internet and mobile Internet terminals.
“It has also been suggested that blockchain based digital currency can be used to replace it, which is also easy to give rise to the consideration of R & D priorities.” Zhou Xiaochuan said: first, will it cause some impact and confusion to the current system; Second, M0 and M1 are not isolated or completely separated; Under certain conditions, M0 and M1 are connected by pipelines and are approximately equivalent. There will be no situation that M0 is highly stable if it is the central bank’s currency and M1 is unstable if it is not the central bank’s currency.
In terms of cross-border digital currency that has attracted much market attention, Zhou Xiaochuan said that whether digital currency can be circulated depends on the application. At the same time, the central bank should ensure the purchasing power of the money issued by the central bank through institutional guarantee, commitment and backup support, which is a kind of debt. Therefore, it is not so easy to apply CBDC in geopolitics and other aspects.
“In another case, the state can give mandatory orders to the currency. For example, what kind of transaction must use what currency, the status of the currency may be improved, but it may just be a formality.” Zhou Xiaochuan said that from the perspective of Lbx Pharmacy Chain Joint Stock Company(603883) in the end, we should see that Lbx Pharmacy Chain Joint Stock Company(603883) is willing to put this kind of currency in the wallet and does not rush to return the money (whether paper or digital) to the bank after receiving it. This is a test and should be considered emphatically.
Secondly, there are many schemes and products in the currency field. Zhou Xiaochuan said that at present, digital currencies include token based, account based and payment instruction based.
Zhou Xiaochuan pointed out that we should pay attention to fairness in the process of competition. We should not maliciously suppress our competitors or destroy the financial infrastructure, because the risk of easily replacing the financial infrastructure is relatively large.
“It should be noted that the innovative good things must lack universality or interoperability at the beginning. At a certain stage, some competent departments, regulatory departments or associations should strengthen universality and carry out some universal standards and interoperability. In this way, it can be multi-party and parallel, but it will increase universality, so that it can be really convenient in the future.” Zhou Xiaochuan said.
In terms of competitive standards, Zhou Xiaochuan said that the security of digital currency is an important point; The most vigilant thing is that innovators, bigtech and fintech should not misappropriate customer funds.
Zhou Xiaochuan also said that CIPS (cross border interbank payment system) is designed for RMB cross-border payment, that is, the system of RMB cross-border payment, settlement and clearing. In addition, some communication functions are integrated into the system, but communication functions are not used much.
“Digital currency, at least China’s e-cny is designed for retail, for the convenience of people and merchants, not to replace the US dollar.” Zhou Xiaochuan said that it is not ruled out that e-cny may have the prospect of cross-border payment in the future, but it is estimated that it will also focus on retail. The application of cross-border retail is not easily used as a military weapon.
Good morning, distinguished guests and delegates. First of all, I sincerely congratulate Wudaokou School of finance of Tsinghua University on its 10th anniversary. As a top university, Tsinghua Wudaokou global financial forum hopes that I can give an academic topic to highlight the research characteristics of the school of finance. I also thought about it. After listening to your ideas, I’ll share with you some issues about digital currency today. In fact, there are two intersecting areas to discuss digital currency. One is to focus on its financial services, including policies, specific financial services, market acceptance and market subject acceptability; The other one focuses on technical measures. The two situations may be different, so I may still focus on the front areas.
In fact, a lot of discussions have been done in this field, and many problems and concepts have been discussed many times. Therefore, I wonder if I can pick out some problems that have not been discussed much in the past or that you may have questions to discuss with you today.
First of all, I’ve sorted out the 35 key issues on the list. I haven’t discussed them in the past.
I would also like to say that I have left the people’s Bank of China for four years, so these discussions I have made represent the views and opinions of personal research, not institutions. Digital currency is a dynamic topic. There are certain differences between the problems raised at the beginning and those raised later. In particular, there are some new ideas on the problems raised in the international discussions. We want to discuss these problems.
first, someone asked how to distinguish and evaluate CBDC , that is, the central bank’s digital currency. What is the feasibility and stability of the funds in the accounts of commercial banks, that is, between the M1 currency of commercial banks and other currencies? First of all, we are concerned about stability. I would like to say that stability should not be considered as one of the two options, either stable or unstable. In fact, stability may be a continuous indicator. Some currencies will be very stable, close to 1, and some are less stable or unstable, close to 0 Others, whether implemented or under design, may have a certain degree of stability, so they may be in it. Some people say that the central bank’s currency is stable. The central bank issues M0. The money M1 in the commercial bank account is commercial currency and does not have 100% stability. I think this statement may actually have some problems, which is questionable, and it is easy to cause some confusion in trust.
From this point of view, first of all, the currency of commercial banks or the funds in their accounts have a high degree of stability. Of course, it is not 100% stable.
Some commercial banks will have problems and some will go bankrupt. When they go bankrupt, your funds may not be available, but that is also an individual phenomenon. In addition, how to measure stability? One kind of measurement is that we find a reference frame to measure. For example, if we measure the central bank’s paper money, is it 100% equivalent? When it comes to the central bank’s currency itself, it is not necessarily 100% stable in the real sense, because the stability and instability of the central bank’s currency also depends on the purchasing power. You can also use the reference system, SDR, USD and commodity combination, so in fact, there are different stable coordinate systems, and it is not necessarily the most reasonable to take the currency of the central bank as the coordinate.
Why do we say that commercial banks can also issue M0? One example is Hong Kong, China. Under British rule, Hong Kong used to have two note issuing banks, HSBC and Standard Chartered. In 1997, Hong Kong joined BOC Hong Kong. Three commercial banks issued notes, but the requirements for the three commercial banks were very high, so the Hong Kong dollars issued by the three banks were also highly stable. Are the notes between the three note issuing banks fully universal? In fact, it may not be 100%, especially from the beginning, but generally speaking, it is highly stable and universal. Why can commercial banks be so stable? If a third-party institution issues money, whether it is of any type or based on any technology, is it stable? It depends on whether it meets high standards. We say that the requirements for commercial banks are quite high, especially for note issuing banks. Which are there? There may be many. I’ll list five of them.
First, high capital adequacy ratio. After the global financial crisis, we put forward a concept called the quality of capital. In addition to having capital, the quality of capital should be higher. What is the high quality of capital? That is, capital has enough ability to absorb losses. If capital is put there and runs away when it absorbs losses, it is not high-quality capital. In addition, there are some auxiliary security requirements, such as leverage ratio and nsfr net stable capital ratio. In addition, as high-quality banks, especially internationally trusted and systemically important banks, or large banks in G20 members, they should have total loss absorption capacity (TLAC) and have higher requirements to do this.
Second, commercial banks require reserves. There are deposit reserves here. The deposit reserve requirements of each central bank in different periods may be different, which also plays a regulatory role. The other is the clearing reserve, which should participate in the clearing system. There are provisions for bad and doubtful debts and provisions for losses. The central bank will give these most important banks a temporary overdraft limit if they can issue money, that is, if there are any problems in the clearing system, they can borrow money from the central bank. Many people are indifferent to this, because this rarely happens, but it is needed in the global financial crisis. In the future, when we engage in CCP, that is, when we are qualified as a central counterparty, if there are transactions in other financial derivatives and securities products, we need a central counterparty, we should open an account in the central bank, and we need the support of the central bank when necessary. This is the second point.
Third, there is a deposit insurance mechanism to ensure that it can be paid in the event of liquidation. China’s deposits below 500000 can be paid in full, which has increased after the global financial crisis. During the financial crisis in Cyprus, large deposits must be converted into equity. In addition, any institution, especially an important bank, will have a lot of international payments, which will change from China’s payment capacity to international payment capacity. One of the international payment capacity is to rely on the foreign exchange reserves of the central bank to provide the guarantee of international payment and overcome the possibility of fluctuations.
Article 4 there should be strong supervision, which has clear requirements on the balance sheet, the quality of the asset side and the liability side, and the arrangement of risk weight for the asset side. Some banks may want to determine the risk weight by their own internal rating. There are provisions in the Basel Accord. You can’t go too far. In addition, there are transparency requirements and stress tests, which ensure the quality of banks.
Article 5 corporate governance. These banks must have a check and balance structure, the team should be professional enough, qualified internal and external audit, and certain requirements for senior executives. In particular, it is not like the earlier time that many problems are caused by a single person who has the final say, so there is a big problem in such corporate governance. Therefore, in this case, the M1 of commercial banks is very close to the currency of the central bank. It can not be said that it is commercial currency and unstable.
If a third-party organization wants to innovate and also wants to be a digital currency or participate in the payment system, it should move closer to high standards to varying degrees and should not be clever. You say those standards are too high and the cost is too high. I avoid them. Neither this nor that. As a technology company, I don’t follow your standards, but if you break away from these standards, there may be problems with your stability. In addition to your own stability, it also affects the stability of the whole system. In addition, you are not easy to get the full trust of users.
From this point of view, there are many innovative attempts aimed at stable currency at present. The source is that we first had so-called unstable currency such as bitcoin. Of course, it is not really currency. Others also say it is digital assets. Libra didn’t want to compare it with any reference frame at the beginning. The stability and instability of this currency is not claimed. It is not stable when you say it is stable. You need to see what supports your stability. You said you had 100% reserve. Is that true? Who did you put it in? Has anyone proved it to you? Has anyone audited it? Generally speaking, this currency is on the liability side. Do you want to use it? Including the purchase of treasury bonds. If it is put into use by the asset side, how about the safety of the asset side? How about liquidity? These are all questions that need to be answered. In addition, do you want to obey strict regulations, or do you try every means to bypass them? Have you considered stress testing under adverse conditions? Because of some innovative ideas and weak strength, it often takes very smooth conditions to say that I can use this and it’s good, but you must consider whether you do stress testing under bad conditions. What should you do when you make a mistake? Should there be transparency when something goes wrong? Because only with a high degree of transparency can there be opportunities for improvement after making mistakes. In fact, with the development of it, many fintech and bigtech companies often make mistakes. Mistakes are not terrible in technology, but how to change technology. However, if something goes wrong, I may cover it with money. I use my own money, especially some companies have high valuation and have a lot of money in hand. If something goes wrong, I cover it with money and don’t say anything to others. The stable currency is not self claimed. There should be a series of condition assessment to show whether you are a stable currency. We should not easily shake our trust in the account funds of commercial banks. Note issuance is the highest. Participating in payment plays a role in a certain link of payment. Even participating in the payment acquirer is also involved in payment. The work requirements at each level are different. If you want to be bigger and stronger, you will have higher requirements. In addition, you should understand that issuing money is a liability. From the balance sheet of the central bank, issuing M0 is a liability of the central bank. It should be said that the development of large technology companies and technology finance companies is promising, and there are great prospects in the payment industry. However, we should pay attention to integrity, don’t play tricks, improve our quality and keep up with high standards. This is the first problem.
the second question is how to understand that the digital currency e-cny (Digital RMB) emphasized by the Central Bank of China is positioned at M0 .
Some people expressed their understanding of this issue, while others raised some questions. I think the leaders of the people’s Bank of China have explained this issue and made it very clear. I’ll add something here.
First of all, the Central Bank of China stressed that the research and development of digital currency is to replace M0, which shows that it wants to focus on the application in the retail sector, that is, it hopes to be applied in the retail sector, especially with the help of the Internet and mobile Internet terminals to provide greater convenience.
In addition, as a large institution, like commercial banks, the central bank needs to rely on a certain department to manage any internal business. Management M0 is one department and management M1 is another department. Research and development costs and pilot costs are managed. Therefore, the positioning of M0 also avoids the chaos of war, and the work is easy to carry out, which is also one reason.
In terms of management, let me give an example. For example, you go to the bank to exchange foreign exchange and look at the brand price. One note and one exchange are different. In other words, the exchange rate rules of M0 and M1 are different when exchanging foreign exchange, and the management is different in the past.
Another is that at present, we believe that M1 operation in the central bank and the financial system is relatively normal. Although with the progress of science and technology, there is room for improvement in any business, such as improving efficiency, reducing costs, increasing safety and correcting mistakes, it seems that there is not so much room for M1 improvement. Don’t say that replacing M1 makes everyone feel that the management methods after M1 will be completely changed, which seems to cause such an impact. It seems that the current system is not easy to use and needs to be replaced.
In the development of digital currency, when the concept of digital currency was first involved, it was mainly divided into two categories internationally. One is based on tokens, the other is based on accounts; One has an account and the other has no account. I think you can also add the check based, that is, the payment instruction based. You give the payment instruction, but the real payment is completed later. So the payment order is a bit like the check practice of the United States and some western countries. In the past, cheques were relatively developed, and it was OK for individuals to sign cheques when buying things. In itself, it was even paid, but in fact, it was only a payment instruction, and there were still some work to be completed. To be honest, this work was not simple, and the payment could not be completed until these were completed. This also involves checking accounts. In the United States, the checking account is M0, so the checking account has not paid interest for many years. It is the same as paper money, so there is an account close to paper money. But in China, M0 has only cash, and the money in the bank payment account and Alipay is M1, so there is a difference in understanding between M0 and M1, so there are still many knowledge in M0 and M1.
In addition, in the early stage of the development of digital currency, we did not intend to specifically replace financial market transactions, such as stock market, bond market and foreign exchange market. It is also suggested that blockchain based digital currency can be used to replace it, which is also easy to give rise to the consideration of research and development priorities. One is whether it will cause some impact and confusion to the current system. Therefore, what we call focusing on replacing M0 can be observed and interpreted in many aspects; The other is that M0 and M1 are not isolated or completely separated. There are pipes between them. As we all know, if the money in the account complies with the regulations, it can be withdrawn as cash, especially for residents. Residents can withdraw small amount of cash, but withdrawing large amount of cash should comply with anti money laundering procedures and cash management regulations. Under certain conditions, there is a pipeline between M0 and M1, which is approximately equivalent. There will be no situation that M0 is highly stable if it is the central bank’s currency and M1 is unstable if it is not the central bank’s currency.
the third question is whether the central bank, especially the people’s Bank of China, should speed up and issue more digital currencies? Especially cross-border digital currency this is indeed related to the current geopolitical problems. I hope digital currency can also play a certain role in this regard. What do we think of this problem? Personally, I think the amount of money printed can be decided by myself, but whether it can go out and circulate depends on the application and whether people use it. Many people don’t understand the process of paper money production of the people’s Bank of China. They think they can use it after printing with a printing press. In fact, they are not. After printing, the banknotes are placed in a large warehouse, which is also a spectacle. For example, Beijing has a fully Siasun Robot&Automation Co.Ltd(300024) operated and highly automated three-dimensional warehouse. There are two kinds of things in the warehouse: one is the production of raw materials, such as paper and ink, and the other is the finished products, which need to be put in the warehouse and can’t go out directly. Then, the finished products are transported and transferred to the cash warehouse of each branch. The cash in the cash bank is received by commercial banks. Whether commercial banks receive or not depends on their own M1 supply and demand difference. M1 supply and demand difference refers to the difference between deposit and loan. More strictly speaking, it is the difference between cash deposit and cash withdrawal. Large amount of cash withdrawal leads to cash flow out. Otherwise, the cash will be kept in the warehouse of commercial banks or the people’s Bank of China and cannot be withdrawn.
What is the season when cash goes out most every year? It’s before the Spring Festival. In the past, many people had to take cash home, but now this situation is reduced. After the Spring Festival, many people put the money they took home back into the bank, and a large amount of money is returned to commercial banks. After the Spring Festival, the cash backlog of commercial banks was too much, so they returned to the central bank’s issuance Treasury. In this process, there is also the treatment of incomplete currency. In other words, the central bank must make the issued money really have the demand for use in the market, especially in the retail market. In fact, the central bank can only issue money when the market has the demand for money, not when it is printed.
In addition, there is a substitution relationship between this M0 banknote and other payment instruments. If other payment instruments are used well, the M0 will decrease. For example, if credit cards and debit cards are used more, the M0 will decrease. For example, there is no real currency cash in the wallet of third-party payment. It is all account funds. If it is used well, we think that without taking so much cash, the shortage of cash will be reduced, so there is also a substitution relationship.
All cash issued by the central bank is the debt of the central bank. Because in many international discussions, they said that China’s digital currency is developing very fast, is a great weapon in the future, and is your asset. People who really engage in the central bank know that money issuance is the debtor of the balance sheet, that is, the central bank should ensure that the money issued by the central bank has purchasing power and can be used at that time through institutional guarantee, commitment and backup support, so it is a kind of debt. Therefore, from this perspective, it is not so easy to apply it to other aspects, especially geopolitics.
In another case, the state can give currency mandatory orders. For example, the status of currency may be improved if what kind of transaction must use what currency, but it may just be a formality, that is, if the government must require this kind of transaction to use this currency, in fact, both parties do not like this currency, and the buyer can exchange it before the transaction, After the transaction, the payee worried about the unreliability of this currency and immediately exchanged it back, so it may be just an intermediary. This phenomenon has occurred in our border trade. Although we encourage the trade between China and border countries to use both the other party’s currency and RMB, in some places, RMB is easy to use, but the other party’s currency is not easy to use; In some transactions, after receiving the currency, merchants, whether in M0 or M1 form, strive to return it to the bank before work on the same day, and the bank also strives to add a little shift after work to transfer the currency to the other country without retaining this currency position.
Why? Generally speaking, they are worried about exchange rate risk. However, many of them are not allowed to keep the position of the other party’s currency due to the requirements of the superior bank. That is to say, if we want to make digital currency, we should pay attention to its real application, not to say that this currency must be used for mandatory transactions. From the perspective of Lbx Pharmacy Chain Joint Stock Company(603883) finally, we should see that Lbx Pharmacy Chain Joint Stock Company(603883) is willing to put this kind of currency in his wallet. It’s OK to use it today and tomorrow. After receiving the money (whether paper or digital), he doesn’t rush to return it to the bank. This is a test and should be considered emphatically.
fourth question, we ask that there are competitive selection of multiple schemes and products. We require interoperability or versatility, but in fact it may take a process. How should we grasp this relationship generally speaking, we should encourage innovation and research and development of new products. After R & D, we should also create certain conditions for them to pilot. Only when they are piloted, have a variety of schemes and compete with each other, will there be survival of the fittest. But will the disappearance cause social problems? Will anyone be damaged? So be very careful.
Unlike other manufacturing and production sectors, the monetary sector may be more sensitive and not so simple. Therefore, we should pay attention to fairness in the process of competition. We should not maliciously suppress our competitors or destroy the financial infrastructure, because the risk of easily replacing the financial infrastructure is relatively large. Competition brings optimization convergence, and finally good things will be selected. At this time, it should be noted that the good things innovated must lack universality or interoperability at the beginning. At a certain stage, some competent departments, regulatory departments or associations should strengthen universality and engage in some universal standards and interoperability. In this way, it is possible for many parties to be parallel, but it will increase universality, It will be really convenient in the future Lbx Pharmacy Chain Joint Stock Company(603883) .
Maybe people in their 70s like me experienced the multi solution problem of color TV when we were about 20 years old. China now adopts PAL system, NTSC used in the United States and Japan, and SECAM system used in the former Soviet Union and the Middle East. People who buy TV should see whether the system you buy is right or not. If not, they can’t use it at home. The research and development of various systems are comparable, and it is impossible to emphasize that whoever is eliminated will coexist for a period of time. For a period of time, someone will develop new integrated circuits to unify them. The first two are relatively simple and easy to unify. For example, SECAM and pal can be unified. The last three systems can be unified. Now we don’t know that there are three systems. Anyway, when you turn on the TV, you can watch it no matter which country you buy or which station you receive. The same is true for digital currencies, such as aggregate payments, which appear on the market. It also includes credit cards. Before the new century, when China’s credit card market was very chaotic, there were visa, peony card of ICBC and JinSui card of Agricultural Bank of China… At the same time, there were 89 POS machines on the counter in large shopping malls. Their functions were basically the same, but they were not universal. Later, the state asked the people’s Bank of China to be responsible for this matter, requiring a POS machine to solve it, so UnionPay was born. In other words, digital currency may also have this process. It is impossible to emphasize a high degree of consistency at the beginning, and it is impossible to decide who will make the standard in advance. Advanced standards cannot be formulated. No one can sit in the office and figure out all these problems in advance. Only in practice, multiple schemes are carried out in parallel, and the best ones are selected through competition. Later, at a certain stage, some institutions will enhance this universality, Can we promote interoperability compulsorily or semi compulsorily. This is also an international practice on digital currency.
In general, digital money has several different tracks. One is token based track and the other is account based track. As I said, a track based on payment instructions can also be a track. In fact, some wallets contain tokens, some wallets contain cash, some wallets are connected to bank accounts, some wallets contain checks, or mixed wallets. With the development of digital currency, the concept of wallet is used more. Really different products compete on different tracks.
Another track is consumer credit. When you spend, you write a white note first, which is equivalent to sending a currency to consumers. Consumer credit based products are also a track, but there are many disputes and problems, and there are many examples of problems. On the token based track, one of the hot issues is the track based on blockchain or distributed ledger technology.
In addition, from the standard of competition, the important point is safety. For example, in our QR code, there was a Trojan horse hidden in the early QR code, which was easy to become something of fraud. Later, with the promotion of the people’s Bank of China, we upgraded the QR code, so it looks good now. However, individual two-dimensional codes, static two-dimensional codes and dynamic two-dimensional codes are different. Some large technology companies say that the two-dimensional code will not last too long after all. Maybe the two-dimensional code will disappear in a few years. Because the security level is not high, some companies vigorously promote NFC, that is, near-field communication, while others advocate promoting Bluetooth. In short, there are all kinds.
Another security is the password. We know that many processes need to be encrypted. For example, the amount in the wallet needs to be encrypted, the process of payment to the merchant needs to be encrypted, and the process of uploading information to complete the transaction also needs to be encrypted. Therefore, there are several encryption links. How to add these encryption? It is also a kind of competition. As we all know, Internet browser encryption used to be 64 bit, 128 bit and 256 bit encryption, and there are many encryption methods. One of the questions is whether to use domestic encryption methods or foreign encryption methods? This consideration is what happens to security in extreme cases. This is also a track.
In short, there are many different tracks in the development of competition. The most vigilant thing is that innovators, bigtech and fintech should not misappropriate customer funds. There are indeed some people who want to misappropriate other people’s money at the beginning of designing the system, but they are a minority; In most cases, there are problems and holes in the operation process, so they have to misappropriate customers’ funds. We also saw some collapsed institutions. In fact, their initial wishes were good, but later they misappropriated customers’ funds and committed the crime of illegal fund-raising.
We said that in this situation, we should emphasize that over a period of time, institutions, including associations, should bear this responsibility, so that those who should be upgraded, including encryption technology, must be upgraded. If you want to use domestic passwords, you must use domestic passwords. If you want to achieve interoperability, you must achieve interoperability. This requires some external force.
fifth question, some people say that legislation must be made first and international standards must be established for the development of digital currency. This wish is good, but it is impossible to make the legislation so clear in the process of R & D and innovation let’s first take a look at the provisions of the law of the people’s Bank of China: the people’s Bank of China is responsible for issuing RMB, managing the circulation of RMB, and maintaining the normal operation of the payment and clearing system. Things related to money are basically on the first page or two of the people’s Bank of China law. If the people’s Bank of China wants to issue a new version of RMB, whether it is coins, paper money or any type of currency, it must issue an announcement in advance, and counterfeiting of currency is prohibited. No unit or individual is allowed to print or sell token tickets, which prevents token products from being issued casually to a certain extent, because no unit is allowed.
In addition, the people’s Bank of China is responsible for recycling and managing the issuing treasury and issuing funds. Therefore, if our research and development of digital currency belongs to RMB, it does not say that we need to legislate first, and there can be no digital RMB without legislation. Therefore, we say that there are no legal obstacles to the e-cny pilot of the winter games, let alone legal obstacles. It is also wrong to say that it can not be carried out without legal obstacles. The issue of currency by a third party is not enough. It needs legislative support. First of all, it needs to meet high standards. However, if the issue is not M0, it may be M1, but not token.
In addition, it can be seen from the law of the people’s Bank of China that issuing currency is a matter of sovereignty. What countries define themselves does not involve international standards. Therefore, although we hope that international organizations can play a certain role, especially in guiding and establishing order in cross-border payment standards, there is no legal requirement that they must have standards before they can do it. And imagine again that no international organization can play such a role in this regard. International organizations mainly play a certain role in the field of cross-border payment. If it is not cross-border payment and involves the payment of other countries in China, there is no need for international organizations to take too much care in the middle. Cross border payment involves many problems, especially the exchange rate. It is also a big problem for international organizations. It can’t be solved for a while and a half. We should have a clear understanding of this formulation.
. I just want you to sort out a few things conceptually.
First, unlike what the media or some people say, swift is not a cross-border international payment system. Swift’s specific name is society for Worldwide Interbank Financial Telecommunications. It is not a financial trading organization as some people think. It is a communication organization. In other words, many communications are needed before payment. These communications go through swift. The final payment and settlement go through the systems of various countries according to the currency. This should be clarified.
In addition, CIPS (cross border interbank payment system) is designed for RMB cross-border payment, that is, the system of RMB cross-border payment, settlement and clearing. Of course, this system also allows other currencies to go. A few mainstream currencies can go, but so far there is not much to go. In addition, some communication functions are integrated into the system, but communication functions are not used much. This is the current situation, and it can’t be pointed to that it can do this or that.
Digital currency, at least China’s e-cny is designed for retail, for the convenience of people and merchants, not to replace the US dollar. Therefore, since it is not designed according to that goal, it may not be able to support this function. Of course, we don’t rule out that e-cny may have the prospect of cross-border payment in the future, but I think it will also focus on retail. The application of cross-border retail is not easy to use as a military weapon.
Why is swift related to trade, investment and financial markets? For example, some countries have been sanctioned, their assets have been frozen, and investment has not received much attention. The transactions in the financial market have basically been blocked, so the most important thing is trade, that is, swift has also played a very important role in trade. Before payment, international trade needs to solve many trade information problems through communication, including whether the contract, storage, transportation, specifications, varieties and quality are in compliance, whether the goods need to be cleared, and there should be tax at the time of customs clearance, and some goods will be returned after the transaction. When it comes to finance, existing payment instructions, letter of guarantee, trade financing and factoring, a lot of things have to be communicated in advance. Even because swift is doing well, some people who are slightly away from trade financing also use this channel to communicate there, so we should understand the current state of communication.
What really involves payment is the payment instruction. Many payment instructions go through swift. When swift really makes cross-border payment, it involves the choice of currency. Swift is not a US dollar payment institution. It can pay in multiple currencies. As for which currency is popular, it is the current choice of the market. We don’t know what the future will be. Involving multiple currencies involves the exchange rate mechanism, which is also a very important issue. In this case, it is said that if we avoid swift, can we do it? In theory, it should be possible to make it, because its foundation is trade. If it’s really not possible, barter, barter trade, but in barter trade, it’s best to have equal amounts on both sides. What if there is a difference in unequal amounts? Still use money. In the past, this kind of difference may be the trade balance of account. For example, the difference between China and some countries of the Council of mutual economic cooperation was recorded in Swiss franc, which is not the real value, because it is not the real Swiss franc.
Therefore, if swift is widely used as a sanctions tool, it should be considered that others can find other communication channels to continue to complete trade. However, swift has formed its efficiency and market scale. First, there are a large number of participating financial institutions, which have scale effect. As long as you enter swift, it is very convenient to contact anyone. Second, swift has done a good job in confidentiality. In the past, there were encryption machines, and now there are many encryption practices. It is rarely heard that there are problems in encryption. As you may know, the Bank of Bangladesh lost a sum of money a few years ago. Do you doubt whether there is a problem with the security of swift? Finally, it was found out that the money was leaked from the connection between the Bank of Bangladesh and the printer, not from the swift channel. Of course, these are all things that the devil is one foot high and the Tao is one foot high. We can’t be so sure. Swift processes information automatically, and many information does not need human intervention. Therefore, the level of automatic processing is relatively high, so it has advantages. If you avoid swift and open another channel, there may be a transition period first. At the beginning, the number of participants in this system may be too few, and many communications cannot be solved, which will affect trade efficiency. Some trade was completed in the past week, but now it has not been completed in two months, because many channels have not been contacted. In addition, there may be security concerns and errors in processing. Manual processing sometimes has loopholes and the possibility of errors. Therefore, swift is not irreplaceable, but there are many things to do to replace swift. There are many things that may affect trade before and during the transition period.
In January this year, I talked about the trade pattern of avoiding sliding into the cold war at Tsinghua public management college. To be honest, if our financial payment system or payment communication system slips into a certain cold war pattern, it will be a loss for everyone. Since many people are concerned about what role swift and digital currency can play in the middle? Finally, take this opportunity to say a few words on this issue.
I don’t know whether the above can answer some of your concerns, but it’s also my own. Of course, some research colleagues around me have made a lot of exchanges, which are not necessarily right. Please criticize and correct what is wrong. I hope it can be a reference for you. At the same time, it can also be regarded as a small investment in Tsinghua Wudaokou global financial forum.
Thank you
Zhou Xiaochuan responded to the “five questions” of digital currency: technology companies can’t be smart if they want to participate
