Liu Xiaochun: Don’t equate blockchain technology with “digital currency”

A few days ago, Liu Xiaochun, deputy dean of the China Institute of Finance at Shanghai Jiao Tong University, delivered a keynote speech at the 2021 financial media “Golden Ying Plan” event of Shanghai Advanced Institute of Finance. In his view, the innovation of financial tools, financial products and financial service methods is inseparable from the basic financial logic and financial laws, and the role of technology is to help realize specific financial functions, and therefore demonstrate extraordinary effectiveness.

In recent years, digital currency and blockchain technology have become popular, and various very imaginative claims have been circulating on the market.

But if you go deeper, you will find that the logical concept behind it is actually very confusing. It is necessary for us to stand in a realistic environment and re-examine the present and future of digital currency correctly.

What exactly is digital currency?

The first thing that needs to be clarified is that digital currency and digital currency technology are completely different things.

Digital currency is a form of currency, and digital currency technology is just an encrypted digital technology. As a technology, it can be used in many ways, not just for digital currency.

From shells to gold, silver, copper and iron, to paper, plastic, and ledger symbols, the evolution of human society for thousands of years has made currency manifestations in various forms. These things are called currency because they are given the function of currency.

The central bank clearly stated that the digital human currency (16.750, -0.56, -3.24%) is only a manifestation of the renminbi, which means that whether it is paper currency, coins, accounting currency, or digital currency, they all belong to the renminbi. Instead of issuing another currency system in addition to the renminbi.

The essence of digital currency technology, including blockchain technology, is a string of encrypted digital codes.

Just like papermaking and printing, it can be used to print albums, books, paper money, money orders, and checks; encryption code technology and blockchain technology can be applied to digital currencies as well as other fields. .

So it is obviously not appropriate to confuse technology and currency simply and roughly.

In addition to the distinction between currency and currency technology, there are still many people who may have a little understanding of the relationship between digital currency and account currency, electronic currency, and third-party payment. The specific distinction can be made as follows:

◎ Digital currency: cash produced by digital technology

◎ Account currency: the accounting symbol on the bank account

◎ Electronic money: digital symbols on bank accounts based on computer technology

◎ Third-party payment: an accounting system based on the bank account system, based on accounting rules and applying computer technology

According to the difference in currency liquidity, there are classifications of M0, M1, and M2 in macroeconomics, where M0 = cash in circulation, M1 = M0 + corporate demand deposits, and M2 = M1 + corporate time deposits + resident savings + other deposits.

And digital currency, as a cash produced by digital technology, is similar to banknotes and coins. It is also a part of M0 and is also included in M1 and M2.

When the parts of M1 and M2 excluding M0, they all belong to the accounting symbol, whether it is account currency or electronic money, and the balance in the third-party payment account, all belong to this category.

Therefore, it is logically impossible to say that digital currencies should be used to replace M1 and M2, because M1 and M2 themselves contain digital currencies and do not exclude digital currencies.

If you use digital currency technology to completely replace the computer technology used in the current bank account system, then you can say that M1 and M2 are also digital currencies, but this digital currency, and what many people say, can be separated from the bank account system for point-to-point payment The digital currency is still different. Most of M1 and M2 must be symbols in bank accounts.

Will blockchain technology subvert the tradition?

With the rapid promotion of digital currency and blockchain technology, some scholars have begun to worry that distributed ledgers will overturn the traditional accounting system. This idea is a bit unreasonable.

As we all know, the biggest feature of blockchain technology is the distributed ledger. Although it is called a ledger, it actually refers to a distributed storage method of information.

If a data warehouse is to store information in one place, then a distributed ledger is on the contrary, it stores the same information in different warehouses at the same time.

This is a physical information storage method. It is not the same species as a set of accounting systems based on accounting principles, and there is no comparability and substitution.

In 2008, Satoshi Nakamoto published “Bitcoin: A Peer-to-Peer Electronic Cash System”, trying to reconstruct the credit system through blockchain technology.

But actual business practices have shown that the overall system efficiency of the blockchain is not high, nor can it quickly achieve smooth payments on the Internet, let alone breaking the so-called bank monopoly.

In addition, in terms of the payment method itself, the point-to-point payment of digital currency is not innovative, nor is it the ultimate destination of the payment method.

In fact, in real application scenarios, we already have a variety of payment methods such as peer-to-peer payment, remittance, collection, settlement, clearing, etc., and then derive cash, account currency, third-party payment, cheque, money order, promissory note , Credit cards and a series of payment tools.

And the reason why there are so many and different payment methods is mainly because different goods and services have different transaction methods, and different transaction methods bring different delivery methods, which ultimately leads to matching payment methods. Each will be different.

For example, when you buy a house, you will find that the land certificate, real estate certificate and other related procedures are very complicated. Only after fully confirming that the ownership has been transferred to your own name, we can formally transfer the payment.

This also shows that although many payment scenarios can further improve efficiency at the technical level, the corresponding ownership transfer speed cannot be solved. The overall transaction can only be slow in efficiency and have many links.

In the final analysis, payment behavior ultimately reflects the rules of a series of transactions behind the payment, not just the payment itself. Only when the delivery methods of these transactions are correspondingly improved, the effect of quick payment can be fully reflected.

How to treat cross-border payment and RMB internationalization correctly?

Looking at the world, from an international perspective, the global application of digital currency is facing numerous challenges.

Because the payment behavior must have a purpose, everyone will not pay for payment, and cross-border payment involves the circulation between two sovereign currencies.

For example, if a person goes to Thailand to buy something, he can use digital currency to pay, but because Thai merchants may not accept RMB, you have to go through the exchange business first and change it into Thai baht.

And the Thai baht itself is a small currency, and many banks will not prepare a lot of Thai baht in advance, so the middle will involve the first exchange of RMB into US dollars, and then use US dollars to exchange Thai baht and other exchange practical issues.

In addition, different countries will have different currency management policies and cross-border clearing systems.

When China is a set of policies, the United States is a set of policies, and Thailand is a set of policies, it is difficult for us to apply a simple technical method to the rules of all these countries.

Of course, as long as we provide technical support, we can design a more complex system to meet the requirements of the three sets of policies, but this system must not only be a payment system, but the sum of the foreign exchange system including the payment system, the foreign exchange review system and other systems. .

Furthermore, different trading commodities often have different trading habits and rules, which determines that the matching payment methods and settlement methods may also be different. Moreover, the payment process of digital currency also requires a complete set of basic technical facilities to support. It does not solve the point-to-point payment, and everything will be fine.

As for the internationalization of the RMB, the key lies in whether the RMB can be generally accepted by the international community as a currency. This is the internationalization process of the RMB and has nothing to do with the specific manifestation of the RMB.

The internationalization of RMB can be considered as real realization only when people can exchange RMB freely for other currencies, buy and sell things easily, or pay labor compensation.

And this realization has nothing to do with the material used to make the currency, and it has nothing to do with the technology used to make the currency. If the international community recognizes the renminbi, it will be the same regardless of whether it is a digital currency or a cash renminbi.

Where is the future of digital renminbi?

The current digital renminbi is still in the pilot stage, and there are still some controversies about its issuance method and its management method.

Although the mainstream issuance plan of digital renminbi is a two-tier structure: from the central bank to commercial banks and then to the public, there will still be a fair competition between commercial banks.

Looking to the future, we should understand that although the current digital renminbi wallet can achieve instant payment in various scenarios, this does not mean that digital currency is the most preferred in all scenarios. Whether the management, service, and maintenance of digital currency circulation can be better than the payment and settlement of banknotes, cash and account currency, all of which need to go through the test of time.

More importantly, to what extent will ordinary people (44.450, -0.46, -1.02%) accept digital currency, in which areas will they be used intensively, and in which areas may not be used at all, this is the real Challenges that need to be addressed.

In short, the innovation of financial tools, financial products and financial service methods is inseparable from the basic financial logic and financial laws, and the role of technology is to help realize specific financial functions and therefore demonstrate extraordinary utility. (Shanghai Advanced Institute of Finance SAIF)

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