Can the central bank also be decentralized? Zhou Xiaochuan talks about the future of digital currency

<blockquote> Xiao Xian said

The "decentralized" nature of digital currency seems to be in natural conflict with the financial media of all banks, including the central bank. However, looking at China and abroad, there are not only various hermits from the public in the wilderness of blockchain. In fact, the central bank and some of the world's top banks have already begun to explore the field of digital currency. Caixin's exclusive interview with Governor Zhou Xiaochuan is very informative, and Xiaoxianjun brings you an exclusive interpretation of the digital currency part.

Title image: blog.blockchain.com

Let’s take a look at some news first:

In October 2015, Andy Hadden, chief economist of the Bank of England, expressed his hope to abolish cash and replace it with digital currency that can charge people negative interest rates. Hadden believes that switching to digital currency will be a "great technological leap forward."

According to Reuters on January 20, Deutsche Bank's new co-CEO John Cryan predicted in Davos that cash may disappear within a decade.

Coincidentally, on the same day, the People's Bank of China held a digital currency seminar, expressing its intention to issue digital currency as soon as possible, and revealed that a special research team had been established as early as 2014.

Prior to this, a total of 42 of the world's top banks joined R3CEV LLC to jointly develop blockchain banking standards; Nasdaq also completed its first transaction based on a blockchain platform.
…

It looks like a new era of currency is dawning.

However, Bitcoin, the earliest application of blockchain technology, seems to have deviated from its original intention after several rounds of hype, and its inventor Satoshi Nakamoto has not appeared yet. How far are we from digital currency? What technology and form will it be realized in? Is the current monetary policy applicable to the regulation of digital currency? What will the digitization of global currency bring?

The February 15th edition of Caixin Weekly published an exclusive interview with the central bank governor Zhou Xiaochuan, and devoted considerable space to recording his views and attitudes on digital currency. The original article can be found here.

As an early-stage investment institution that has long focused on blockchain technology and all data-driven Internet financial companies, we at Linear Capital believe that this interview with President Zhou mainly revealed the following information:
1. The central bank started researching digital currency very early. It is a natural choice and a general trend for new technology to replace the previous generation of currency with low technological content;

2. Legal tender digital currency must be issued by the central bank. The main principles are:
Convenience and safety;
Protect privacy and maintain social order;
be consistent with monetary policy;
Retain control over monetary sovereignty and make it controllable and convertible.

3. There is no timetable for the issuance of digital currency at present. It may run in parallel with cash and gradually replace it for a long time in the future;

4. The issuance and operation of digital currency should still be based on the binary system of "central bank-commercial banking institutions", but the changes in the delivery and custody methods have improved the security and efficiency;

5. The anti-counterfeiting technology of digital currency is a state secret. The central bank will take technology upgrades into consideration in advance and introduce the concept of long-term evolution from the beginning;

6. Blockchain is an optional technology, which is characterized by distributed bookkeeping, not account-based, and cannot be tampered with. The People's Bank of China has deployed important forces to study and explore blockchain application technology, but it currently occupies too many resources and cannot cope with the scale of transactions;

7. In addition to blockchain technology, the People's Bank of China has also conducted in-depth research on other related technologies involved in digital currency, such as mobile payment, trusted and controllable cloud computing, cryptographic algorithms, security chips, etc.;

Conclusion

Overall, the central bank's attitude towards the digitization of currency is still very forward-looking, and it started earlier than many developed countries, or at least not too far behind. Blockchain is currently the most suitable technology for digital currency, but there is still a long way to go in terms of policy and technology, especially in terms of security, privacy protection, and the impact on the existing money supply, creation mechanism and monetary policy transmission.

It will be a very long process for humans to cross from the cash era to the digital currency era. We at Linear Capital are very willing to participate in this major technological change. If you are a frontier person in the financial and technological circles, welcome to contact us in the background. We will work with the central bank to "decentralize"!