Director of Institute of Digital Currency of PBC Dialogue with Industry Experts: Digital Currency of Future Is a Programmable Smart Currency
On December 19, 2017, China (Shenzhen) FinTech Global Summit was held in Shenzhen, focusing on cutting-edge issues in FinTech Innovation and Regulatory (Regtech).
In the morning discussion session, Yao Qian, director of Institute of Digital Currency of the People’s Bank of China, hosted the roundtable discussion of Digital Currency & E-payment, with invited guests of experts from Institute of Currency Digitization and professionals of related academia and industries, including He Baohong (director of Cloud Computing and Big Data Institute of China Institute of Information and Communication), Guo Rui (vice president of Tenpay), Yang Dong (vice president of Law School of Renmin University of China); Zhou Ziheng (researcher of the Institute of Finance, Chinese Academy of Social Sciences, and Zhang Yifeng (president of Zhongchao Blockchain Technology Research Institute).
Since the strong fist of ICO ban in September this year, discussions of the Central Bank’s developing on digital currency have been increasingly heated. Previously, Yao Qian has mentioned in public for several times that it was of great significance for the Central Bank to promote the development of legal digital currency and digital economy, to fundamentally guarantee the market position of legal tender. In today’s roundtable discussion, he affirmed the basic nature of digital currency being a kind of payment. In the context that China is currently leading the world’s mobile payment, it will be heading toward a promising prospect of smart currency in the future.
Yao Qian then gave the definition of digital currency as following:
“In the long run, the Central Bank’s digital currency is a credit issue in terms of value supporting, and regarding its realization, it should be an encryption issue. In terms of operational requirements, it is likely to be connected with ledger. And regarding its future application prospect, it should be a smart currency. “
In the course of its development, Yang Dong pointed out that improving the relevant laws and regulations not only can clarify digital currency’s issuance, rights and liabilities, etc., but also help to provide a legal support for the protection of personal information data and achieve the balance of data flow and exchange.
Zhou Ziheng then explained relationships of digital currency vs digital economy, digital legal tender vs legal tender, and bank-issued currency, digital legal tender vs non-digital legal tender. He particularly emphasized that there is a strict line which could not be crossed between private digital currency and quasi-digital currency.
The content of the roundtable discussion is briefly as follows:
Yao Qian (Host): The theme of this session is digital currency and e-payment, I’ll first talk about my understanding about it
- Digital currency is quite hot at present, I believe people paying attention to it are attracted by the surprising prices of those digital currency. We, Institute of Digital Currency of the People’s Bank of China, are paying more attention to the Central Bank-issued digital currency. As for the connection between digital currency and e-payment, the former is certainly a payment instrument, on the contrary, must the latter be a currency? Not necessarily. This is the first point I want to make.
- For another, just now many guests have also mentioned that China is now thriving in financial technology and attracting investors from all over the world. We cannot say that China is in the forefront of the world in every field of financial technology, but one field in which everyone is very confident: e-payment. Everyone may make payments by WeChat Pay and Alipay in our daily life, which many countries aim to learn.
- Thirdly, it is controversial about the definition of digital currency. My understanding is that it should not be regarded as a static definition, but a dynamic one. In the digital economy, currency digitization is actually processed in a very dynamic and evolving way. Some attributes may be very clear to us, while some may have not yet clearly seen and need deeper exploring.
He Baohong: Formulate Industry Standard of Credible Blockchain: Algorithm Proof Does Not Mean Feasibility of Technology Realization
I am a Tech practitioner, so I’ll talk from an industrial perspective. When we are talking about the governance and regulation of FinTech, it is not just a problem of finance and financial services. In fact, we also encounter similar problems from a technical and industrial standpoint. At the birth of this new technology, there’s a crowd of businesses popping out and claiming, “we’re engaged in blockchain, artificial intelligence or big data”, with many companies flocking in and disguising like this, disorders thus soon follow.
It is the same case with blockchain, every enterprise claiming that their blockchain is credible. Blockchain technology is credible, but after all, it needs combining with other technologies. In this process we found that every business practices are not the same, many enterprises just playing the concept and lacking actual technical support. Some may claim that their system is much better, while in fact, the standards and assessment environment are varied accordingly.
Therefore, we bring about the standard of credible blockchain with Institute of Digital Currency and more than 30 blockchain-engaged enterprises including Tencent. The basic idea of this standard is that it do not limit your blockchain technology, frameworks or protocol, but regarding the user or other aspects of digital currency, we have to question that whether your blockchain is credible, and need full disclosure about your company which should be verifiable.
After nearly one year’s development, nine enterprises’ blockchain has been evaluated for the first round this year. According to relevant standards, we have found that it has indeed played a leading role in the development of the entire technology and industry. In fact, we are all discussing the standard, which is the consensus process. Blockchain needs an implementation mechanism, the blockchain standard itself is a consensus, so what we do is making a consensus mechanism.
This point has been achieved with very good result. In October this year, the China Organization for Standardization has been established and has been officially adopted as an international standard. As Yao just said, we take the leading role not only in the mobile payment field, but now also in the standard field in the world. I also urge more businesses to join our credible blockchain, to promote the domestic underlying infrastructure of digital currency in a healthier and more orderly way. Thank you.
Guo Rui: Programmable Smart Currency: Overcoming Abstraction and Realizing Capital Orientation
- First, what kind of defects do I think exist in nowadays payment? Currency is excessively abstract. Currency is first used to help people to conduct goods exchange. Being excessively abstract, it was hard to trace and easy to lose control. Even though it is very convenient for us to make payment with WeChat in daily life, we still face the problem. Will digital currency of the future solve this problem? My thought is that the primary consideration of payment is convenience, which means the convenience of carrying, circulation, exchange and application in different scenarios. For example, we used to hand out a red envelope with preparing work of finding a red envelope or paper and then wrapping money in it, but now it’s easy to send it on WeChat. Years ago we need to get a lot of change ready in pocket before we take buses or go shopping, while now what you need is just a mobile phone. But with only this feature is not enough, payment actually solves another problem. That is to connect business owners, including operational staff with consumers, which means during the payment a connection has be made between the shop owner and consumers. You can follow the store’s public WeChat account on which the store’s marketing messages can be sent. This is the reason why offline merchants are glad to have WeChat payment and e-payment, they do not just consider the convenience for consumers, but also the connection with them. This is our second stage of development. I’ll define the digital currency of the future as smart currency. Why smart currency? Because the currency used now is a piece of paper with a number on it, while in the future, our currency is programmable. How to understand it? We can make appointed consumption at appointed time in an appointed store. Anything you can imagine can be added, and the benefit of it is that we will know how the money is going from a regulatory point of view. Surly this depends on whether you need it, but at least it has this competence. And now all the cash as well as e-payment cannot do it.
- Second, it is said that our country conducts a lot of audits and investigations in some areas where consumption loans flow, in this sense, is there any possibility that there will be a digital currency that can purely be used for consumption? The money, or the loan cannot be used to conduct speculations on real estate or stocks, but only for purchasing. You can imagine a lot on the programmability of currency, including the smart currency we just talked about. In the future, every penny of our public welfare donation, which cannot be embezzled by anyone in any sector, can be directly transferred to any school you want. Once embezzled, it will be rejected by other organizations. It also includes some precise poverty alleviation and capital controls. Your funds can only be used for consumption but not for speculation. The digital currency of the future is smart, and we can imagine it with more competence as a hardware or software, with its underlying technology being blockchain supporting public credit. On the basis of this credit we give it intelligence. This is the development of currency of future, that is, smart currency, thank you.
Yang Dong: Improvement on Monetary Law and Civil Law: Clarify the Nature and Boundary of Digital Currency
As for the next step regarding digital currency issuance, we have done some legal research on legal tender. To promote digital legal tender, we should have more exploration and discussion on the legal level, including the legal form and nature of digital legal tender.
We also need to consider from a legal perspective that what impact digital legal tender may have on the financial system and other paper money systems, as well as the impact on social transaction structure and related environments, and make evaluation on it. Regarding the related entities including paper money, Alipay and digital currency, for a long time, they will co-exist. About their respectively liabilities and obligations, there is a need to make some flexible and comprehensive definitions in the legal framework, including some clearer provisions on illegal and criminal activities as money laundering and illegal fund-raising.
In this respect, we need to have a clear and legal definition of this legal subject, including the conditions and objectives for its issuance, as well as some reasonable assumptions about its future. The new digital legal tender, in certain circumstances, may be free from some liabilities for that it can neither completely replace the currency, nor be completely independent.
Regarding the issue of anti-money laundering, it should be stipulated in relevant articles. Including the Central Bank, commercial banks and Internet companies, I believe Tenpay, Ant Financial will also participate in the pilot of digital legal tender. The rights and obligations of all parties need some more explicit consideration.
Attempts to verify the idea and technical refinement are undergoing, to ensure that the promotion of digital legal tender is transparent, legal and credible.
Zhou Ziheng: Digital Currency Depends on Digital Economy
Basically, digital currency depends on the digital economy, that is to say, digital currency will emerge only when the digital economy’s development and maturity reaches a certain stage.
Today’s digital economy is already a fact, at least a partial fact and, more importantly, it is a fact of the trend. Both the real economy and the non-real economy have the trend of digitization, which is the inevitable trend of the entire social and economic development. And we must start with the digital economy’s level of development and maturity to learn about digital currency.
Distributed Computing Power is the Technology Trend of Digital Currency
Keynes’s “Theory of Money” has made clear the purpose from the very beginning that modern currency is account currency, cash is of great significance of the coinage era, the entire monetary system is not a very important issue. Digital currency and digital legal tender have two sets of account system, one is the existing bank account system, which has limited support for the digital economy, for example, we can hardly imagine bank’s online banking can help develop the digital economy, there is no doubt the next step must be the lawful operation of online digital account. The fundamental solution is to introduce digital legal tender.
My basic understanding is it is a transition of these two sets of account system- the bank account system and non-bank account system. As for the newly established online digital account system, what’s the next step of it technologically? This account is program-driven, which is a computing problem under the basic conditions of digital networks. Will the digital legal tender gradually expand beyond the existing development? Therefore, the final technical trend is to be engaged in distributed computing power and to make it better, thank you.