The central bank China Finance: international experience of Legal Exploration of digital currency
With the development of digital technology, the United States and Europe developed countries and regions have begun to actively explore the regulatory authorities should play a role in the development of the digital currency, legal digital currency and some even began to design their.
Compared with the electronic payment main electronic payment instruments based on the traditional digital currency is a virtual currency based on the latest information technology. At present, the currency of the digital by non financial institutions issued, and circulation in the virtual world, there is no international definition and unified call. The European Banking authority (EBA) said the currency as “virtual currency”, and defined it as “digital representation of value, neither the central bank or issuing a public authority, and is not linked to currency, but due to being a natural or legal person can be accepted as a means of payment, or electronic form, storage or transfer trading”. Virtual currency itself is not a physical entity, nor to a physical entity as the carrier of the money, but for the digital information network investment, trading and storage, on behalf of a certain amount of wealth. Recently, the U.S. Commodity Futures Trading Commission (CFTC) will bitcoin and other virtual currencies are defined as commodities, which means that bitcoin futures and options to comply with the CFTC regulations and accept the supervision. Virtual currency is popular in the world at present, mainly using the block chain technology, can realize the point to point anonymous direct payments and controlled, including bitcoin, Wright currency.
The practice of non statutory digital currency
In recent years, digital currency bitcoin as their representatives to the center, cross-border circulation, controllable anonymity, low transaction costs, no hidden costs and other technical advantages, quickly gaining widespread attention. Although the national regulatory authorities of bitcoin and other digital currency development prospects and regulatory measures did not reach a consensus, but many financial institutions and regulatory authorities agree with the digital currency technology has very broad application prospects. Since the advent of bitcoin, Citibank as the representative of the commercial banks have also started using block chain technology research and development of their digital currency.
Digital currency issued by non-financial institutions
In November 2008, Japanese programmers Nakamoto (SatoshiNakamoto) designed and released a point to point to the center of the digital currency bitcoin. In recent years, the rapid development of bitcoin business, the number of issued and the supply of steady growth, expanding the scope of use, bitcoin is gradually formed based on the mode of economic development.
Compared with the traditional currency, coins and other digital currency mainly has the following characteristics. One is to the center. Digital currency bitcoin does not exist in the traditional sense of the central currency system, there is no central clearing, trading process does not require financial institutions to participate in, but is completely based on the network, realize the currency created by the use of special mining approach. The two is the amount of a certain extent controllable. According to the design idea, the money supply process of bitcoin should be predictable, bitcoin will create a new number every four years in a rate of 50% decrease geometrically, around 2040 to 21 million, and then stabilized. The three is a completely open transaction. Bitcoin transactions can not be hidden, each transaction will be recorded in the system, and all the transaction history information disclosed. Four is the pseudonym of trading. Although each transaction information must be disclosed, but no real identity information transaction account associated knowledge, therefore, other digital currency bitcoin transactions also has a certain anonymity.
Because the digital currency with the above properties, compared with the traditional currency and electronic trading also has corresponding advantages. A transaction is fast, low cost. Digital currency transactions take point to point to the center of the network, without third party clearing fees can be as low as zero. Therefore, the digital currency has the absolute cost advantage and time advantage in micro payment and cross-border payment. The two is compared with the traditional currency, bitcoin transactions more secure, transparent, security. Take the hacker bitcoin encryption algorithm, it is very difficult to crack, automatic authentication mechanism of bitcoin also makes it impossible to fake. At the same time, all bitcoin transactions in the public network, can effectively prevent the illegal activities.
However, these characteristics also make other digital currency bitcoin faces greater risk. One is the anonymity of bitcoin can be used to avoid high taxes, capital controls and confiscation of property, can also be used to engage in criminal activities. Two is the price volatility affects the value of bitcoins storage function, which is more like a speculation. The three is security bitcoin trading platform of doubt, may suffer losses because of hacker attacks. Recently, the European trading platform BIPS because the accident loss of 1295 bitcoins. Four is the bitcoin coinage in the hands of the “miners” in the hands of the government, it is difficult to effectively control the total amount of the currency and the implementation of macro-control. The five is the future of bitcoin once included in the regulation, may increase transaction costs, so as to reduce or even eliminate the cost advantage.
Digital currency issued by commercial banks
Because of the block chain technology used for the digital currency has lower cost, faster speed, higher security advantages, some large international financial institutions have begun to try to develop their own digital currency using the block chain technology.
Credit Suisse began experimenting with digital currency in April 2015, the development of a real currency and central bank accounts associated with the “multi purpose settlement currency, the virtual currency can be used for trading on the trading platform set up by the financial institutions on the block chain technology. In order to promote the circulation of virtual currency in the financial sector, Credit Suisse hopes and other market participants, such as Asset Management Co, regulatory authorities and financial infrastructure providers (such as clearing, exchange) jointly issued the currency.
Citibank said in July 2015 that its are using bitcoin block chain distribution account technology developed their own digital currency — “Citigroup currency” (Citicoin). R & D Citi coins are in the early stages is the internal test run of three independent block chain, by testing with money, rather than real money in the operation. At present, Citibank communication is digital currency related with the relevant national government issues, including the possibility of establishing block chain distribution network in the world within the scope of the account and create a kind of support by a number of countries the possibility of digital currency.
Note that the main purpose of financial institutions is the development of digital currency trading and settlement mechanism for the financial platform to provide support, not to challenge the central bank issued legal tender status. In fact, Citibank has also publicly recommended that the Bank of England to take advantage of the technology of digital currency, the issue of legal digital currency.
The main central bank’s attitude towards digital currency
The representative of Germany to the euro zone countries are not active on the central bank to issue legal digital currency attitude. They believe that through the Central Bank Monopoly digital currency, to a certain extent can guarantee the safety of money, but is likely to hinder the development of digital currency. The German central bank stressed that any behavior are based on the need of legal authorization, the central bank the primary goal is to maintain price stability, the legal effect of the central bank issued currency does not include the issuance of digital currency products. The German central bank argued that the main body of the market (such as users and businesses) to decide what kind of payment more convenient, let the competition mechanism play a role, not directly intervene in the market, is not a kind of payment do promotion and support. This is also the German central bank operation and management of the usual way and thinking.
The Fed is very concerned about the digital currency bitcoin is a typical representative of the impact on banking, financial stability and economic activity. From the perspective of the impact of the banking system, digital currency the use range is still small, all kinds of storage and payment security issues have not been solved effectively, the development of digital currency in the short term is difficult to have a greater negative impact on the banking system. But in the long term, digital currency may be widely used, the impact of the banking system may be expanded. From the point of view of the impact on the economy, cross-border digital currency powerful payment ability contributes to the promotion of international trade and investment, promote capital flows to developing countries from developed countries to promote economic growth in developing countries. The issue of illegal trade in digital currency and the anonymity problem is not serious negative impact on the economy is relatively limited. From the perspective of the impact of financial stability, financial stability of digital currency from the inherent stability and stability of the system in two aspects: on the one hand, and other digital currency bitcoin price volatility has a strong, easy to form a greater impact on the financial markets; on the other hand, the digital currency transaction size is limited, has not yet become a factor lead to systemic financial risks. But in the long term, characteristics of digital currency limited volume may affect the macro-control role of traditional monetary policy instruments, and thus pose a threat to financial stability. At present, the Fed on the digital currency supervision mode still has a different sound. The Federal Reserve Bank of Chicago believes that bitcoin is a great concept and technology, is likely to be the existing financial institutions and even regulators used; former Federal Reserve Chairman Bernanke also pointed out that other digital currency bitcoin may have good development prospects. However, the Federal Reserve Bank of Saint Louis believes that bitcoin is a virtual currency for the intrinsic value of zero and there is no legal support; the Federal Reserve Chairman Yellen also pointed out that the Fed does not have the power to supervise or in any way to control other digital currency bitcoin.
The governor of the Bank of England’s monetary policy vice president Broadbent said that the main innovation lies in the technology of distributed digital currency accounts. The central bank is likely to take advantage of this technology, so that more participation in the central bank’s balance sheet, not only allows commercial banks in the central bank, also allows non bank financial institutions, even every market participants (including enterprises and individuals) directly in the central bank. The central bank issued a digital currency including the potential impact on the economy: one is the impact on the economy depending on the Bank of digital currency specific design form, especially the degree of competition and Commercial Bank deposits. The two is the central bank issued a digital currency to consider its impact on bank financing and credit supply. The three is a digital currency issued by the central bank’s future into a real bank account, or exist only in the form of electronic cash, is undoubtedly an important issue. If the central bank not only digital currency instead of cash, but also with the commercial bank deposit from the competition, the central bank digital currency will produce more substantial impact on the economy. Overall, the Bank of England is actively on the issue of legal digital money attitude, said the existing digital currency technology or have very good prospects for development, the central bank should consider applying the technology to the digital currency issue. At present, the Bank of England has begun to study how to effectively use the digital currency technology, and begin to discuss the feasibility by the central bank to issue legal digital currency.
The central bank may have the advantage of digital currency
The advantages of digital currency relative to cash
One is to reduce the cost. Digital currency relative to the cost advantage of high cash, especially in a single transaction cost. Norway’s central bank report shows that each cash transaction costs (including cash and coin bank processing costs) is about 7.1 kronor, while the card transaction cost is only 4.1.
The two is fast and convenient payment. The promotion of digital currency contributes to the realization of “any time, any place, using any device for the transaction function. This is the Singapore SELT plan and the Nordic countries put forward the “cashless society is one of the main considerations”.
The three is to reduce the risk of robbery. Digital currency encryption can effectively prevent theft and robbery. The Swedish Banking Association released information shows, with the popularity of electronic payment, the bank robbery in 2015 hit a 30 year low.
Four is to help the central bank interest rate regulation. Cash holdings to a certain extent, will have a negative impact on the effectiveness of the negative interest rate policy tools, and the issue of legal digital currency can be through the implementation of negative interest rates when necessary, break the “zero interest rate lower limit”.
The five is to reduce tax evasion and other criminal acts. Digital currency transactions “traceable” contribute to the regulatory authorities to monitor digital currency flows when necessary, so as to reduce tax evasion and money laundering and other illegal and criminal behavior.
Digital currency relative to the possible advantages of electronic payment
Is a point-to-point direct transaction, may help save the interbank clearing and other intermediate links, to pay more quickly, more cost saving. This advantage in the micro payment and settlement of cross-border trade is more obvious.
The two is the electronic payment to online payment system, need to rely on the network signal, and digital currency transactions can realize offline transactions, which helps to broaden the scope of the transaction.
The three is a digital currency system can realize the anonymous payment to a certain extent, the receiver does not need to know what money funds the transferor’s personal information, so as to protect the privacy of the users in a certain extent.
The four is to improve financial inclusion. Digital currency network does not need to bind bank account, which helps to make the remote area residents to enjoy the modern financial services.
Digital currency issued by the central bank’s advantage
One is the total amount of control, value fluctuation. If the digital currency issued by commercial banks, commercial banks may compete for Seigniorage and to issue a digital currency, forcing the legal currency in “free banking system”. In fact, part of the national banking system had a serious crisis in the last century, people require the bank to cash savings vehicle occurred when the massive breach, the government eventually had to intervene and re-examine the currency mechanism. If the third party payment institutions and other institutions to issue digital currency, may cause problems in total control, value volatility, the impact of monetary credit.
The two is to reduce the credit risk. Compared to commercial banks and other institutions, the central bank’s credit risk is zero. The risk by the central bank to issue legal digital currency can effectively avoid other institutions fail, maintain financial stability.
The three is fair. To obtain other digital currency bitcoin to rely more on the performance of computer and programming skills, legal digital currency issued by the central bank by the creators of wealth by virtue of honest labor to obtain wealth, and does not depend on the performance of the computer and other external factors, so as to create a fair social environment.
The four is a non-profit. The central bank issued legal digital money may not be to digital currency users (such as individuals and businesses) charge any fees, but is committed to improving the whole efficiency of the payment system.
The five is safe and controllable. From the perspective of national security, the central bank issued a digital currency to help independent control of core technology, to avoid the heteronomy, while helping to track illegal transactions, reduce crime.
The central bank issued a legal challenge of digital currency
One is the promotion of digital currency is facing some difficulties. Due to the use of digital currency is the cost of migration, issue in digital currency market early, its acceptance is not high. For users, the use of safety related technical issues need to understand and learn the new system; businesses may need to increase investment to integrate the new system and the existing system. At the same time, due to the use of means of payment has a certain scale, may be in the early stages of development of legal digital currency a certain inhibition on the large range of cash. The government needs to be promoted in the early stage of development to take certain measures.
Two is there may be crowding out effect. Digital currency monetary authorities issued, with its almost competitive conditions for zero credit risk may be unfair to the commercial bank and third party payment institutions to issue digital currency formation, crowding out effect, may cause loss of a lack of competition and efficiency.
The three is likely to form social isolation. Although everyone can hold and use real cash, but not everyone can hold and use of electronic money, not everyone can master the use of digital currency technology. With the digital currency to continuously replace cash, part of low-income and low education level of the population may eventually become divorced from the mainstream society, causing social isolation phenomenon.
The four is unable to protect privacy. Digital currency payment system can track the transaction information, the possibility of leakage of user privacy, some users may lead to the rejection of the use of digital currency. The central bank needs to carefully study how to prevent information leakage problems in the issue of legal digital currency.
The five is the security problem. Once the legal digital currency issued by the central bank security problems, would be a serious blow to the public trust, a serious impact on the credibility of the central bank. Therefore, the central bank issued legal digital currency put forward higher requirements for the safety and technology of the payment system.
Six is a huge database operation and maintenance costs. Whether it is offline or online digital currency system, need to maintain a large database is used to store the past transaction data or other data. With the increasingly widespread use of digital currency, database operation and maintenance costs may rise significantly, need to be prepared for.
International experience shows that currency digital technology in the future or have very broad application prospects, compared with the traditional digital currency notes and electronic payment has its inherent advantages. No matter considering the currency or the angle of financial supervision, if used properly, the central bank issued legal digital money may become the future development direction of the currency, payment mode.
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