The central bank issued a digital currency, is the risk or opportunity?
On the legal tender system as a result of the impact of rapid development of virtual currency bitcoin and other major countries, the central bank has gradually realized the digital currency the central bank only issued, in order to fundamentally guarantee legal currency market position. Thus, many of the country’s central bank has started research on the issue of legal digital currency. For example, the Bank of Canada, the researchers published many papers on work in recent years, the central bank issued a digital currency impact on social welfare and other aspects; the Bank of England published in August this year, the central bank issued “macroeconomics” digital currency, the central bank issued a digital currency on the possible impact on macro economy from theory the people’s Bank of China; set up a digital currency research project group as early as a few years ago, also recently disclosed the relevant research. In addition, Ecuador is the attempt by the central bank issued a digital currency — Ecuador currency.
The issuance of digital currency mode
Combining with the current situation and future trend of technology and financial depth, the central bank issued a digital currency is an inevitable event, for which the country’s central bank to release and when the issue is facing many uncertainties. In addition to a great deal of uncertainty is the mechanism of the central bank issued digital currency is single or multiple.
The central bank issued a digital currency, digital currency system needs to establish a set of basic. In this system, the central bank in charge of digital currency bank, bank management of commercial banks, the public and individuals holding a digital wallet. This is not much different from the nature of monetary system existing, but the management of currency from variable digital encryption currency notes. In the issuing mechanism, there are two modes: one is the traditional “central bank, commercial bank” model, the central bank will digital currency by the central bank to issue Treasury issuance of commercial bank bank, when the person in the commercial bank teller, digital currency by commercial banks to individual a digital wallet. Another pattern is the “central bank public” mode, the central bank can direct digital currency by currency issued to the public library digital wallet and personal. In fact, no matter what kind of distribution model, eventually currency held by the public, is the central bank for public debt.
England bank vice president Ben Broadbent (BenBroadbent) in March 2, 2016 at the London School of Economics on the “central bank” speech and digital currency, the central bank’s balance sheet for each participant in the market (including personal) open, but may cause the commercial bank to transfer the deposit to the central bank, which will produce multiple effects. Although Ben Broadbent special statement of the content of the speech represent the personal views do not represent the Bank of England’s official attitude, but at least we can observe the mechanism in the digital currency issuing bank of England high level there is no clear tendency.
The people’s Bank of Chinese started to study on the digital currency as early as a few years ago, “Chinese finance” in 2016 seventeenth periodical published the people’s Bank of Chinese digital currency research project group and the members of the research about digital currency in a series of articles, the article clearly expressed a preference for the first issue of machine system, so can not subvert the existing currency circulation under the system, gradually in the existing monetary framework for legal digital currency gradually replace banknotes.
Untested financial environment
If you choose the “central bank public” currency issuance mechanism, which means that the central bank can open the money in the helicopter when necessary, can direct the implementation of negative interest rate monetary policy, which is undoubtedly the current European Central Bank and the Bank of Japan is to implement negative interest rates of the central bank, is an event. However, the currency issue mechanism completely subvert the existing currency circulation system, thus entered a hitherto unknown and untested financial environment. As the Blau of the special concern, if deposits from commercial banks to the central bank, then the funds deposited in the central bank will be safer, the problem is also the initial damage bank credit ability.
In the current banking system, banks mainly through bear period conversion functions, short-term deposits into long-term loans, play the function of money creation and in the process, to meet the financing needs of the community. Give full play to the functions of the need to have rolling demand deposits in the banking system liquidity. If a large number of deposits to the central bank, so as the Blau of the special concern, the bank will immediately lose liquidity sources, thus more reliance on wholesale funding, while the wholesale market funds is quite stable in the period of economic crisis, most will eventually lead banks to reduce credit support for the real economy. This means that, in the financial crisis, banks can integrate funds will become more a shortage of credit will be further reduced, so as to accelerate the economic recession.
In addition, a professor of finance at the University of Chicago John Cochran famous (JohnCochrane) this view, with the digital currency issuance, depositors will no longer need to rely on commercial banks to hold their current account, and the government can get rid of the risk of heavy deposit insurance business. Will improve the long-term debt and equity capital in the market to continue lending to commercial banks, the termination condition will lead to a mismatch between the liquidity problems of current storage and long-term loans, then the economic crisis and the financial operation will end.
Rewrite the mechanism of commercial bank
No matter what kind of digital currency issuing mechanism, to be sure, the commercial bank lying to make money era will become history. Digital wallets will now meet the various scenes of paper money as payment function, digital currency owned by individual is deposited in bank deposits in order to obtain the corresponding interest and assume the bank bankruptcy losses may occur, or digital wallet in a more secure, such a simple choice, will completely change the operating mechanism of commercial banks and about its fate. The commercial banks in the deposit will face hitherto unknown competition, instead of between personal digital currency and demand deposits will be the risk of interest rate and bank system become more sensitive. The market competition equilibrium may go to two extremes, one end is the bank deposit interest rate and deposit to personal digital currency empty digital wallet and save it in the bank account; the other end is empty of individual bank deposits at the same time, this part meet the digital currency liquidity preference stored in individual a digital wallet, banks will no longer play financial intermediary function transformation period. The notes in the case will no longer be the equilibrium outcome, that people may no longer be part of the money in the bank account and the other part of the currency held in hand, because of changes in interest rates or other related factors will drive people in the distribution of holding money from one end to the other end completely.
With the advent of the era of digital currency, physical outlets institutions commercial banks also will be substantially reduced, it is replaced by the digital network or intelligent network. The development of artificial intelligence technology, will further accelerate the strategic adjustment of the layout of commercial bank outlets. The resulting cost reduction will help offset the commercial bank deposit in the competition on the rise in the cost of. It can be predicted that when the physical network is no longer the main source of deposits of commercial banks and even become the management burden, the formation of big banks in the new market structure in the process may even be eliminated, small and medium-sized banks comply with the development of the situation will have the opportunity to achieve back, and the financial strength of science and technology and more convenient and personalized financial services will be the leading factors in the formation of the new pattern.
In short, the central bank issued a digital currency is the history of mankind a great monetary reform, will eventually create a more stable financial world. In this process, the financial infrastructure will be re constructed, the financial system will be re design, financial transaction environment will be re created, but the biggest risk is the risk transfer path. From the notes of human beings across the monetary system to the digital era monetary system this path, because in a hitherto unknown untested financial world, known and unknown risks are intertwined, each a small step forward may face tremendous challenges, such as digital currency system stability, hacker attacks and coordinate with other central banks, and in the process of financial institutions, the forces of the old alternate and other factors, are likely to bring great financial instability. The need to strengthen research and science related to the prejudge the central bank, and make arrangements in the process of system transfer system, in order to cope with the resulting market turmoil and financial risk.