Legal digital currency is getting closer

China's legal digital currency is gradually heating up. The People's Bank of China's 2020 second half work video conference held recently pointed out that in the first half of the year, "the closed pilot of legal digital currency was successfully launched", and in the second half of the year, "the legal digital currency research and development will be actively and steadily promoted". In addition, there are reports that large state-owned banks are testing digital wallet applications in Shenzhen and other places to prepare for the testing of digital currency landing.

Experts believe that Guangdong's financial technology industry is relatively developed and has a natural advantage in carrying digital currency, and may provide strong support for the continued expansion of the People's Bank of China's digital currency in the future.

The functional attributes are exactly the same as banknotes

In short, digital currency is issued by the central bank, is a liability of the central bank, has national credit, and is equivalent to legal tender. The digital currency that the central bank is developing is referred to as "DC/EP", where DC stands for "digital currency" and EP stands for "electronic payment". Previously, Mu Changchun, director of the Digital Currency Research Institute of the People's Bank of China, gave a clear definition of it, namely, "its functional attributes are exactly the same as paper money, but in digital form" and "it is a digital payment tool with value characteristics."

Digital currency has three characteristics: First, the central bank's digital currency is positioned as "cash in circulation". It does not pay interest and can be used in small, retail, and high-frequency business scenarios; when using it, all current regulations on cash management, anti-money laundering, and anti-terrorist financing should be observed, and large and suspicious transactions of the central bank's digital currency should be reported to the People's Bank of China. Second, the central bank's digital currency is legal tender and has legal compensation. Merchants cannot refuse to accept digital currency. Third, the central bank's digital currency adopts a two-tier operating system. The central bank first exchanges digital currency to banks or other operating institutions, and then these institutions exchange it to the public.

In April this year, a photo of the central bank's digital currency being tested in an Agricultural Bank account circulated online. Subsequently, the Digital Currency Research Institute of the People's Bank of China responded to the central bank's digital currency internal testing, saying that the current DC/EP information circulating on the Internet is the test content in the process of technical research and development, and does not mean that the digital RMB has been officially launched. "The current closed testing of the digital RMB will not affect the commercial operation of listed institutions, nor will it have an impact on the RMB issuance and circulation system, financial markets and social economy outside the testing environment."

Although legal digital currency is still in the testing stage, China still has the potential to become the first country to apply digital currency.

Financial analyst Xiao Lei said in an interview with Nan Fang Daily that in terms of official digital currency in the strict sense, China is the first country to test it. He estimated that it would take at least one to two years for digital currency to go from testing to implementation, during which time it would require the expansion of usage scenarios and the popularization of software for commercial entities, namely digital wallets. "If it can be embedded in existing systems such as Alipay and WeChat Pay, it may be implemented faster."

"In general, China is ahead in this regard. The market has developed rapidly, which naturally triggered the demand for the research and development of legal digital currency, and the central bank must take the lead." Lian Ping, chief economist and director of the research institute of Zhixin Investment, told reporters in a previous interview.

The difference between digital currency and mobile payment

Consumers who have long been accustomed to using mobile payment tools such as WeChat, Alipay, and UnionPay QuickPass can't help but ask: What is the difference between digital currency and existing mobile payment tools?

Regarding this question, Dong Ximiao, chief researcher of CMB Financial, said that the central bank's digital currency is legal tender, while WeChat, Alipay, and Cloud QuickPass are just payment methods. "Specifically, there is no legal problem for institutions or individuals not to accept mobile payment. But refusing users to pay with cash or digital currency is illegal."

Xiao Lei also pointed out that digital currency has the highest credit rating. The ultimate credit guarantee of digital currency is the central bank, that is, the national credit; while the credit guarantee of mobile payment is Tencent, Alibaba and other commercial institutions, and the credit guarantee of online banking payment and other means is the bank.

From the user's perspective, Dong Ximiao believes that the central bank's digital currency has a wider range of use, unlimited legal compensation and compulsory nature, while other payment methods do not have this function. Compared with non-bank payment methods, the central bank's digital currency is more secure, has a wider range of use, and does not need to be bound to a bank account.

Will the arrival of digital currency affect the current payment pattern? In this regard, Xiao Lei believes that for mobile payments, digital currency brings about changes in payment media rather than simple payment channels. "Existing mobile payments only need to connect to the digital currency module, which will not have much impact. However, compared with the era of online banking, in the era of digital currency, many users may also use the bank's digital wallet to pay directly, skipping the third-party payment platform. This needs to be continuously monitored." He further pointed out that digital currency is a further reconstruction of the underlying commercial transactions, and will be a step higher in convenience than existing mobile payments, "For example, mobile payments cannot be completed offline."

Support application pilot projects in the Greater Bay Area

Data from the Guangzhou Branch of the People's Bank of China show that in the first quarter of 2020, there were 4.537 billion mobile payment transactions in Guangdong Province with a total amount of 11.95 trillion yuan; in the past three years, the number of mobile payment transactions and transaction amounts have increased by an average of 37.97% and 16.35% respectively.

As a major province in mobile payments, is Guangdong ready for the changes brought about by digital currency?

In fact, at the current stage, digital currency has been tested in closed pilots in many cities including Shenzhen. Recently, the "Shenzhen Action Plan for Implementing the Opinions on Financial Support for the Construction of the Guangdong-Hong Kong-Macao Greater Bay Area" was released, proposing a series of measures and tasks such as "actively participating in, supporting, and coordinating the application of the People's Bank of China's digital currency in various scenarios in Shenzhen pilot projects."

Judging from the recent views of the heads of the province's financial management departments, Guangdong is seeking more space for the testing and scenario applications of digital currency.

For example, at the second Guangdong-Hong Kong-Macao Greater Bay Area Financial Development Forum, He Xiaojun, director of the Guangdong Provincial Local Financial Regulatory Bureau, said: "Guangdong will further encourage innovation, deepen business integration with Hong Kong and Macao in virtual banking and other areas, break through data barriers, and innovate the use of digital currency scenarios, so that modern financial technology can better serve the construction and development of the entire Greater Bay Area."

Bai Hexiang, president of the Guangzhou Branch of the People's Bank of China, published an article in China Finance, saying: "We support the pilot application of digital currency payment scenarios in the Greater Bay Area, promote qualified financial institutions in the Greater Bay Area to become pilot institutions for digital currency issuance and operation, encourage sharing economy platform companies and retail platform companies to participate in the pilot application of digital currency payment, accelerate the opening of public service departments to digital currency applications, actively expand digital currency payment application scenarios, and promote the first implementation of digital currency in the Greater Bay Area."

"After large-scale use in the future, Guangdong should be a very important market. Its developed business, concentrated population and extensive foreign trade may all become support for the continued expansion of the central bank's digital currency." In Xiao Lei's view, Guangdong is a region with very developed financial technology and has a natural advantage in carrying digital currency.

Source: Nan Fang Daily