Event: on January 20, the Federal Reserve released its report “money and payment: US dollar in the era of digital transformation”, which expounded its views on the benefits and risks of issuing central bank digital currency (CBDC), clarified the preconditions for issuing digital dollars, and solicited opinions from the public on more than 20 issues within 120 days. The Federal Reserve believes that the current global CBDC research boom may come from the central bank’s anxiety about the rise of private sector digital currencies (bitcoin, stable currency, etc.), and digital dollar may be a huge innovation to the dollar.
The Federal Reserve officially released the central bank’s Research Report on digital currency for the first time and paid unprecedented attention to “actively participating in international standard setting”. Although the Fed stressed that the release of the report aims to throw out views and solicit public opinions, and does not represent the action tendency of issuing or not issuing digital dollars, we believe that the release of the report itself reflects the Fed’s high attention to the subject of CBDC. Previously, some branches of the Federal Reserve issued reports on this subject, and the head of the Federal Reserve chairman made oral statements. The release of this report reflects the unprecedented attention of the Federal Reserve headquarters to CBDC. In addition, the Federal Reserve has repeatedly expressed its concern that the issuance of CBDC by some countries may harm the United States to maintain its leading position in relevant fields, and proposed that the United States will actively participate in the formulation of CBDC international standards regardless of whether it issues digital dollars or not, continuing its radical attitude in other financial and technology tracks.
“The issuance will be confirmed by congressional legislation”, and the Federal Reserve has made clear the four key characteristics of the digital dollar. The Federal Reserve proposed that CBDC is a digital form of paper money and a central bank liability available to the public. It said that it would not issue digital dollars without the clear support of the executive department and Congress, especially the special authorization law. The Federal Reserve also said that if it issues digital dollars, it will have four key characteristics: 1) protecting privacy; 2) Not directly operated by the central bank, but by banks and non bank institutions; 3) It can be transferred and can be easily transferred among various operating institutions; 4) User identity is identifiable.
The benefits and risks of issuing CBDC coexist, and the Federal Reserve calls for more research. The Federal Reserve summarized the potential benefits of issuing CBDC, including: 1) safely meeting the market demand for payment services; 2) Improve the existing problems such as slow, expensive and poor availability of cross-border payments; 3) Support us dollar internationalization; 4) Financial inclusion; 5) Improve the public availability of central bank liabilities. The Federal Reserve also mentioned the potential risks of issuing digital dollars, including: 1) changing the structure of the financial market (people’s interest in bank deposits decreases, banks’ loanable funds decrease, affecting credit expansion. However, the central bank can not pay interest for CBDC, and limit the amount of CBDC that the public can hold); 2) Affect the security and stability of the financial system (people “move” bank deposits to CBDC, which may lead to bank runs and increase financial risks); 3) Affect the efficiency of monetary policy implementation (the circulation of CBDC affects the balance sheet of the central bank, and then affects interest rates, securities markets and foreign exchange markets); 4) Affect personal privacy and data protection, and affect the prevention of financial crimes; 5) Affect the flexibility and security of the operation network.
Actively study blockchain, smart contract and other technologies. The Federal Reserve put forward the assumption that digital dollars can realize real-time payment and conditional payment (such as direct tax collection and direct distribution of funds to the public), and also proposed that some branches are studying the possibility of applying blockchain and other technologies to CBDC.
Investment suggestion: China and the United States complement each other at the CBDC track. We are optimistic about the opportunities that the reconstruction of China’s electronic payment industry chain by digital RMB may bring to relevant institutions. Suggestions: 1. Bank acquiring service providers: card transfer, Lakala Payment Co.Ltd(300773) , Newland Digital Technology Co.Ltd(000997) ; 2. Financial IT / banking service providers: Shenzhen Forms Syntron Information Co.Ltd(300468) , Northking Information Technology Co.Ltd(002987) ; 3. Digital RMB related operating institutions: Industrial And Commercial Bank Of China Limited(601398) , Agricultural Bank Of China Limited(601288) , Bank Of China Limited(601988) , China Construction Bank Corporation(601939) , Bank Of Communications Co.Ltd(601328) , Postal Savings Bank Of China Co.Ltd(601658) , China Merchants Bank Co.Ltd(600036) , Alibaba, Tencent, etc; 4. Security chip company: Unigroup Guoxin Microelectronics Co.Ltd(002049) , Huada electronics, etc; 5. Card dealer: Hengbao Co.Ltd(002104) , Chutian Dragon Co.Ltd(003040) , Wuhan Tianyu Information Industry Co.Ltd(300205) etc.
Risk tip: the operation mode of digital RMB needs to be verified, and the promotion progress of digital RMB is less than expected.
