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The rise of central bank digital currency: DC/EP is leading the world



On August 24, 2020, the Bank for International Settlements (hereinafter referred to as BIS) published a work report entitled "The Rise of Central Bank Digital Currency: Driving Factors, Methods and Technologies". According to the report, the central bank digital currency (hereinafter referred to as CBDC) will greatly change the payment and lifestyle of human beings in the future. Among many economies around the world, the digital currency DC/EP of the People's Bank of China is at the forefront of the world. At the same time, the report calls on central banks around the world to learn from each other's experience to further improve the efficiency of domestic and cross-border payments and enhance the stability of the financial system in the payment field. The report aims to answer three key questions about central bank digital currencies: What are the economic and institutional drivers of issuing a CBDC? What is the technical solution sought? How are central banks dealing with these issues?  The report shows that as of mid-July 2020, at least 36 central banks around the world have issued retail or wholesale CBDC work. At least 3 countries including Ecuador, Ukraine and Uruguay have completed retail CBDC pilots, and 6 CBDC retail pilots are underway, including Bahamas, Cambodia, China, Eastern Caribbean Currency Union, South Korea and Sweden. Yu Weiwen of the Hong Kong Monetary Authority: The Digital Currency Research Institute of the Central Bank and the Hong Kong Monetary Authority are studying the use of digital renminbi for cross-border payments: Golden Finance reported that Yu Weiwen, President of the Hong Kong Monetary Authority, wrote yesterday that the HKMA is currently working with the Digital Currency Research Institute of the People’s Bank of China. Research the technical testing of cross-border payments using digital renminbi, and make corresponding technical preparations. Yu Weiwen said that although domestic payment services around the world have been highly digitized, the development of cross-border payment services has been lagging behind. Except for some transfers through the same bank or platform, other cross-border payments generally have problems such as time-consuming, high cost, and low transparency. The reasons include different operating time zones, different ways of implementing international standards, different technical standards of payment systems, and so on. Yu Weiwen said that the HKMA has been actively developing financial infrastructure, providing a multi-currency and multi-level platform, and connecting the payment system with surrounding areas and international systems to promote faster and safer cross-border payments. In addition to leveraging and continuing to develop the advantages of the existing financial infrastructure, the HKMA is also committed to researching the application of new financial technologies to cross-border payments. "Last year, we cooperated with the Central Bank of Thailand to conduct research, using the central bank's digital currency and blockchain platform to solve various problems in cross-border payments." Yu Weiwen said that the joint research has now entered the second stage, including exploring Specific business application solutions, as well as the operability and scalability of the platform (that is, expansion to three or more central bank digital currencies). Yu Weiwen believes that in the long run, there is an opportunity to develop a regional cross-border payment platform by taking advantage of the trend of strengthening international cooperation on cross-border payments. Yu Weiwen said that in terms of cross-border payments, there has been an encouraging development recently. "The Hong Kong Monetary Authority is working with the Digital Currency Research Institute of the People's Bank of China to study the technical test of using digital renminbi for cross-border payments, and make corresponding technical preparations." Yu Weiwen said that the use of renminbi in Hong Kong is very common, and digital renminbi is positioned in circulation. The use of cash will bring greater convenience to tourists from both places. Although there is no timetable for the launch of the digital renminbi, it is believed that it will provide more payment options for residents of the two places who need to make cross-border retail consumption in the future. [2020/12/6 14:16:54] In addition, 18 central banks have published research on retail CBDC, and another 13 banks have announced that they are conducting research and development on wholesale CBDC. Shanghai Securities News: The central bank’s digital currency has entered the traffic end testing stage: On July 25, the Shanghai Securities News published an article signed by Professor Pan Helin, Executive Dean and Professor of the Digital Economy Research Institute of Zhongnan University of Economics and Law, "Digital Currency Test Acceleration Application Scenario" Worth looking forward to”, the article pointed out that although the central bank’s digital currency cannot be officially issued soon, and it will take some time for it to be launched on a large scale, this does not prevent us from understanding a series of exciting application scenarios it can bring. The two aspects that have the greatest relationship between the scene and our ordinary people are the digitization of cash and the loose coupling of bank accounts. The digitalization of cash means that digital currency will replace our cash to a certain extent, and the loose coupling of bank accounts can be said to be a basis for digitalization of cash, and it is also the key for digital currency to truly be separated from third-party application platforms. From a national perspective, digital currency can replace some of the functions of banknotes, which greatly reduces the cost of printing currency issued by the central bank. In addition, in terms of supervision, all transactions of digital currency can be queried and traced by the central bank and other regulatory agencies, which will effectively strip away the cloak of illegal activities such as malicious money laundering and tax evasion. The central bank's digital currency has reached the stage of opening the traffic terminal test, which indicates that my country's digital currency is not far away from the official launch, but it still needs to go through a process of repeated testing and continuous improvement during this period. [2020/7/25] The Central Bank’s Digital Currency Xiongan Pilot Invitation List Released Starbucks and other 19 companies are on the list: On the afternoon of April 22, the Xiongan New District held a legal digital RMB (DCEP) pilot promotion meeting. The promotion meeting was organized by the Reform and Development Bureau of the Xiongan New Area Management Committee. Including digital currency R&D institutions and pilot merchants are invited to participate. It is worth noting that the digital currency was previously reported to be used for transportation subsidies in Suzhou, but in the list of pilot promotions in Xiongan, catering and retail companies are the main ones. The participants of the promotion meeting consisted of three parts: first, relevant departments, including the Development and Reform Bureau of the New District Management Committee, the implementation team of the legal RMB pilot work in Xiong'an New District of the Shijiazhuang Central Branch of the People's Bank of China, and the Smart City Federation of Xiong'an New District in charge Second, the institutions involved in the research of digital currency include the branch of Gongnong Zhongjian in Xiongan, as well as the relevant responsible persons of Ant Financial and Tencent; the third is the person in charge of the application pilot unit of the central bank's DCEP to be implemented. The specific list is as follows: Zhonghai SPV, Jinfeng Catering, Jiankun Catering, Kaili Hotel, Oscar Studios, McDonald's, Starbucks, Subway, Jinbaihe, Cainiao Yizhan, UnionPay Unmanned Supermarket, JD Unmanned Supermarket, Veleco There are 19 units including Bakery, Kunlun Hospitality Convenience Store, Qingfeng Baozi Shop, Zhongti Beili, CITIC Bookstore, Taoli Pavilion, and New Era unmanned vehicles. Except for China Overseas SPV, the rest are shop-type units for catering, entertainment and retail. (Inter-chain pulse) [2020/4/23] Picture: Voice of CBDC project status | It will take a long time for digital currencies to make a decision. (Golden Ten Data) [2020/1/14] Source: BIS Work Report According to the report, the economic and institutional motivations for issuing CBDC will vary across countries and regions. In advanced economies, central banks are researching CBDCs to promote safety and soundness, or domestic payment efficiency, according to a late 2019 survey of central banks by the BIS Payments and Market Infrastructures Committee. Concerns about financial stability may also be an important driver of R&D efforts. Especially in emerging market economies, financial inclusion is an important motivation. In addition, the new crown pneumonia epidemic will also accelerate the CBDC process in some countries and regions. BIS also developed the CBDC Project Index (CBDCPI) and conducted an empirical survey of common factors in countries that are researching and piloting CBDCs, and found that: higher mobile phone usage (a measure of an economy's overall digitalization index) and higher innovation capabilities Positively correlated with the likelihood that a country is currently researching or developing a CBDC. As a result, the report said, CBDC development is closely related to higher mobile and Internet usage, higher innovation capabilities, and higher government efficiency. Golden Morning News | South Korea: No plan to issue central bank digital currency Half-month talk: Be wary of the comeback of "leek harvesters": 1. People's Daily: China is pushing for independent innovation of blockchain technology, but still faces many challenges. 2. Bank of Korea: There are currently no plans to issue a central bank digital currency (CBDC). 3. The utilization rate of Bitcoin’s Segregated Witness reached 58.27%, nearly tripled compared to the end of August. 4. Half-month talk: While the blockchain is favored, we must be wary of the comeback of the "leek harvester". 5. Shenzhen Business Daily: Virtual currency speculation will be included in Shenzhen's local financial key supervision. 6. People's Court News: Beware of "Blockchain" becoming "Blockchain Fraud", using the name of "Blockchain" to defraud people of money is not only despised by people, but also prohibited by the law. 7. Xinhuanet: Don’t read the scriptures of the blockchain in a wrong way. The blockchain cannot become a “gimmick” for hype and a “signboard” for deception. The development of the blockchain should not be caught up in eagerness for quick success and quick money. wrong way. 8. Shen Danyang, Vice Governor of Hainan: Targeted development safeguard measures will be formulated for blockchain and so on. 9. V God: The stateless model of Ethereum 2.0 can enhance security. [2019/11/25] Secondly, when discussing factors that may affect the demand for CBDC, the report believes that CBDC projects develop faster in places with higher levels of per capita GDP and financial development. Retail CBDC develops faster in areas with high innovation capabilities and large informal economies. Thus, retail CBDCs are more likely to emerge in regions with larger informal economies, while wholesale CBDCs develop faster in economies with higher levels of financial development. According to the different designs of CBDC on the legal claim structure and the records kept by the central bank, the report divides the current CBDC solutions into four different CBDC architectures, namely: direct CBDC, hybrid CBDC, intermediate CBDC and indirect (or synthetic) CBDC. Across the different national CBDC projects covered by the BIS survey sample, approaches to architecture, infrastructure, access and cross-border (retail or wholesale) interconnection vary. Among them, in terms of structure, 4 central banks are considering the direct model, which is usually to enhance financial inclusion, 7 central banks are considering hybrid or intermediate options, and more central banks have not yet specified the structure. However, this research report shows that none of the central banks considered using an indirect/synthetic architecture. “With regard to architecture, one might expect direct or hybrid and intermediary architecture choices to be more likely in less developed or less financially included economies,” the report says. In fact, we find the opposite: Possibly due to the influence of the Nordic countries, Canada, and China, we find that higher income regions are more likely to choose direct, hybrid, or intermediary structures, and these regions have greater account access and higher government efficiency.” In Fundamental Technology In terms of choice, the central bank can choose to be based on a traditional centralized database, or it can be based on DLT technology (distributed ledger technology). Some central banks have made it clear that DLT technology does not have any fundamental advantages over using a centralized issuance system. Even the central banks that have chosen to experiment with DLT technology today have adopted permissioned DLT, with operators deciding who can access the network. No central bank is willing to take the risk of using permissionless DLT technology. Facing the differentiated solutions of central banks in various countries, the report describes three currently more advanced examples, namely the DC/EP project of the People's Bank of China, the e-krona of the Riksbank, and the CBDC contingency plan of the Bank of Canada. Europe and North America. Among them, the structure of the DC/EP pilot is the "hybrid CBDC" model: its characteristic is that the CBDC has direct claims on the People's Bank of China, but access and real-time payment services are operated by intermediaries (called "authorized operators") Yes; the central bank regularly receives and stores copies of retail holdings and transactions. Technically, DC/EP adopts a hybrid architecture of traditional centralized database and DLT technology to meet the high concurrency requirements of large-scale retail transactions in China. Riksbank’s e-krona project is one of the first CBDC projects in the world. As the use of cash in Sweden has been declining in recent years, the Riksbank has long held social discussions on making central bank payment instruments available to the public. Over time, the e-krona project has made considerable progress, and a related pilot project with Accenture was launched in February 2020. Sweden is currently conducting a proof-of-concept for the e-krona project, and its architecture is also a hybrid CBDC. Riksbank researchers note that the ongoing pilot is a “decentralized database of all e-krona in circulation at any given moment, with the Riksbank verifying all transactions before completion.” Noting that such a design would require the Riksbank to "Provide contingency solutions in the event of failure of one or a few intermediaries, in case a large number of end users are unable to pay the e-krona". The Canadian CBDC scenario specifically considers scenarios where the use of physical cash is reduced or eliminated entirely, and where private cryptocurrencies or stablecoins make significant inroads as a means of payment. If a CBDC is to be developed, the overall goal is to use it as a digital liability of the Central Bank of Canada, designed as a digital add-on with good resilience and accessibility. The report also pointed out that among all the current CBDC projects, the People's Bank of China's DC/EP project is at the most advanced stage of development. As the world's most populous country and the world's second largest economy, China's introduction of a CBDC could have far-reaching consequences. In addition to facilitating online transactions, a CBDC would also bring more diversity to the current mobile payment duopoly of Alipay and WeChat Pay, which together control 94% of the mobile payment market in China. If a decision is made to move beyond the current pilot phase, DC/EP would complement M0, which includes banknotes and coins, as well as central bank depositary accounts, but it is not intended to fully replace physical cash. In terms of international interconnection, DC/EP will connect existing retail and wholesale systems, including real-time payment and settlement systems. The main target of DC/EP is domestic retail use. Nonetheless, non-residents (such as tourists and business travelers) can use DC/EP with foreign mobile numbers with entry-level wallets if they can agree with foreign governments.


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