Fan Yifei: the theoretical basis and architecture China legal digital currency
The central bank should consider maintaining the stability of the financial system, promote financial innovation, with technology evolution path based on factors such as legal, gradually realize the digital currency circulation and the private sector digital currency supervision
Fan Yifei, Wen
The people’s Bank of China Deputy Governor
In recent years, the rise of digital currency boom, some underlying and related technologies, such as block chain technology and distributed accounting method, also shows a broad application prospect. Digital currency from theory to reality, the necessity, feasibility and safety of being market tested. Some kind of digital currency bitcoin as the representative of the first to be applied in the private sector. Some central banks are also actively studying the system design and Research on the key techniques of digital currency legal. As the central bank, should be considered to maintain financial system stability, promote financial innovation, with technology evolution path based on factors such as legal, gradually realize the digital currency circulation and the private sector digital currency supervision.
Contains a lot of interesting phenomena in the evolution of currency. The original barter is a completely decentralized arrangement. But because the supply and demand coupled this situation is very difficult, the transaction efficiency is very low, which greatly limits the trade development, can not be unified measure of value. Under the promotion of the “market” money media appeared, and real money from the beginning of a gradual transition to the precious metal currency, and then to the gold and silver currency, currency form and value more and more stable, the media widely. The development of physical currency, gold and silver currency has experienced a long history, but because of this kind of trust, non center currency prone to counterfeiting, shoddy, Quejinshaoliang phenomenon. With the national currency, man has finally entered the era of money center.
Note there is another great leap in the history of money. In order to solve the problems of inconvenient carrying natural loss, the gold and silver money in the country, with public power and credibility of banknotes issued currency substitution. Note also started to anchor the gold or silver, to maintain currency stability and public confidence. Later people found that money can exist out of gold and silver, so pure credit money, this is a more typical monetary center. Note their value and face value from, not only saves the cost of issuance, more importantly can greatly promote the development of the trade, monetary policy operations have since become possible.
In twenty-first Century, the Internet technology the popularity of digital currency based on Internet and digital encryption technology based on it. Digital currency and banknotes, essentially pure credit money, but digital currency can further reduce operating costs, and in a more extensive field to be used more efficiently. From some of the existing digital currency, behind the running to the center of the mechanism, to establish a trust system mainly through distributed accounting method. But these types of digital currency still exist and the fundamental limitations of history as the value of private monetary instability, credibility is not strong, the acceptable range is limited, prone to large negative externalities. Therefore, by the central bank to promote legal digital currency is inevitable. The central bank digital currency to the national credit guarantee, the maximum range can achieve online and offline synchronization application, improve transaction convenience and maximum security.
The legal effect of digital currency will inevitably be affected by the current payment system, information technology, but also need the appropriate distinction with the existing payment system, to focus on their service areas, to play its function to replace the traditional currency. Theoretically, the payment system mainly deal with the money in part of demand deposits (M1-M0), and the digital currency mainly belongs to the category of cash (M0). Any kind of money are required to have a specific form and carrying mode, physical currency, gold and silver currency banknotes or so, digital currency is no exception. The specific form of digital currency can be a source to the real account number, can also be recorded in the name of a specific cryptographic algorithm verification and consensus number. These digital currency can reflect or carry on the digital wallet, and digital wallet and can be applied to the mobile terminal, PC terminal or on the card. If only the general digital with digital wallet, only electronic currency; if it is encrypted digital storage in digital wallet and run on a specific digital currency network, this is pure digital currency. The advantages of electronic money is a simple form, in the existing payment system of minor changes can be completed; the disadvantage is greater reliance on the account system, tamper proof ability, KYC (Know Your to understand the customer, Customer) and AML (anti money laundering, Anti-money Laundering) high cost. The advantages of pure digital currency can absorb the advanced technology of various types of digital currency, which is more difficult to tamper, easier operation, online and offline channels of strong visibility, more extensive mode of operation; the disadvantage is the need to build a new eco system, higher technical requirements, system operation and maintenance difficulty. The above two forms are complementary to each other in a certain extent, in different application scenarios can be used to meet the different needs of preferred.
The legal framework of digital currency is a very key problem. There are two modes: one is by the central bank directly to the public issuance of digital currency; the two is to follow the traditional “central bank and commercial bank two yuan” mode. The first is the commonly used model of some kind of digital currency at present, in this case, the central bank directly facing the whole society to provide legal digital currency issuance, circulation and maintenance services. Second still use the current banknotes issued by the central bank circulation mode, the digital currency to the commercial bank business base, commercial banks by the central bank commissioned to provide legal services to the public access digital currency, and together with the central bank to maintain the normal operation of digital currency flow, legal system. We prefer the second mode, the reason is very simple: one is easier in operation under the framework of the existing legal currency let digital currency gradually replace the paper money, and not to subvert the existing currency circulation system; two is the commercial banks can mobilize the enthusiasm and participation of legal digital currency circulation, proper risk diversification, accelerate service innovation, to to better serve the real economy and the livelihood of the people.
The safe operation of legal digital currency must rely on strong technical support, including the overall structure of the digital currency, as well as by the protocol, data format, digital signature, digital wallet and other elements of joint construction technology digital books.
From the current development of the industry, various types of digital currency private sector launched mainly using block chain technology and encryption technology, through the method of competitive bookkeeping, private key signature verification to ensure the security of the system operation. The legal digital currency different from the private sector digital currency: the latter to the center; and the former must be the center or part of the center, in order to ensure the safety and efficiency. This feature determines the legal digital currency must be absorbed in the private sector type digital currency technology based on continuous innovation and transformation. For example, flattened network hierarchy, change public chain chain alliance, become competitive as cooperative accounting bookkeeping, and let some of the key nodes involved in the accounting system in the past.
The legal digital currency for the operation of another technology pillar is cipher algorithm. Look at the situation from the private digital currency, it is heavily based on the cryptographic algorithm, account operation to the protection of user private key signature, transaction security. But unfortunately, due to the anonymous characteristics of private human digital currency, we often see the private key leakage caused by monetary assets is difficult to recover the stolen. The legal digital currency must solve this problem, not only to ensure the safety of users of digital money by cryptographic algorithm, and a controllable anonymous mechanism by means of technology, to achieve certain conditions can be traced back, to further enhance the legal security of digital currency.
The legal digital currency must accept the public and market testing, digital currency only accepted the public legal and market vitality, also can achieve the real alternative to the traditional currency. Therefore, we must pay attention to the legal digital currency its service ability and competition ability from development date, including market credibility, convenience, safety, flexibility, system operation, system efficiency of diverse application scenarios such as payment. Although the legal digital currency compensation law with natural status, any person, any institution with circulation environment conditions shall be rejected. But how to scientific decision and digital currency regulation in order to ensure the stability of the currency, the central bank should become the most important issue of legal digital currency considerations, the key will become different monetary authorities launched a digital currency competition in the network world.
The legal digital currency will have a profound impact on all aspects of the economy and society, especially the impact on the financial system more far-reaching. The accurate assessment of these effects is not, but logically possible several results: first, monetary structure changes, monetary multiplier increases; second, real money demand continued to decline, financial assets conversion speed; third, the velocity of money can improve measuring accuracy, based the analysis of big data is more solid that is conducive to better calculate the monetary aggregates, the analysis of monetary structure; fourth, KYC and AML to reduce the cost, improve the efficiency of supervision; fifth, providing a shared financial environment, financial innovation driven.
The legal digital currency of the financial system may also bring another important change, that is more likely to lead to financial disintermediation, effects of money creation. Because the digital currency to deposit cash (M2-M0) to (M0) the transformation becomes very convenient, financial panic and financial risk once generated will also accelerate the contagion, exacerbate the damage to financial stability and security. In view of this, certain conditions must be set to the appropriate mechanism to limit.
Of course, the actual effects of legal digital currency of the financial system is only in its currency circulation as truly known. We must consider the situation, actively and steadily carry out the institutional arrangements and the macroeconomic regulation and control, to ensure the positive effects of legal digital currency of the financial system, to minimize the negative impact of the maximum.
In President Zhou Xiaochuan’s concern and guidance, the people’s Bank of Chinese has been highly concerned about the development of digital currency, and actively carry out relevant research work. From 2014 on the organization of experts set up a special research team, and further enrich the power at the beginning of 2015, the digital currency and operating framework, key technology, digital currency digital currency circulation environment, digital currency facing legal problems, digital currency on the economic effects of financial system, statutory and private digital digital currency the relationship between monetary and foreign digital currency issuance experience in-depth research, has achieved initial results.
At present, the people’s Bank of the digital currency research is entering a new stage, including strengthening the internal and external exchanges and cooperation, specialized research institutions, to further improve the legal system of digital currency issuance and circulation, accelerate legal digital currency prototype construction and in-depth research and try to apply the legal digital currency related information technology set up. In this process, we will be in a scientific, rigorous, open attitude, and actively explore and practice carefully, does not exclude any new technology, new method is safe and effective, also look forward to extensive and in-depth exchanges and cooperation with the community, to jointly promote the legal China digital currency soon become a reality, make a contribution to the national economy and society the development of.
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