Experts’ heated discussion: what is the impact of “non interest bearing” of digital RMB on monetary policy?


Author: Du Chuan
Since the beginning of this year, the trial pace of the central bank’s digital currency has been significantly accelerated, which has attracted more and more attention from all walks of life.
What is the relationship between digital RMB and third party payment? What is the impact of “non payment of interest” on monetary policy? Recently, at the 2020 China UAE innovation investment conference, Cheng Lian, researcher of Institute of finance, Chinese Academy of Social Sciences, deputy director of financial policy research center, Secretary General of national and financial laboratory academic committee, and Zou Chuanwei, chief economist of Wanxiang blockchain, respectively expressed their views on the development prospects and challenges of digital currency.
Will third party payment be impacted?
Since this year, the people’s Bank of China has successively reached strategic cooperation agreements with a number of Internet institutions to jointly study and explore cooperation in innovative application of digital RMB.
Is there competition between digital currency and third party payment? Whether it will impact on the three party payment methods such as WeChat and Alipay will cause extensive discussion in the market.
At the forum, Zou Chuanwei believed that digital currency will indeed have a certain impact on third-party payment. In the retail payment scenario, there will be some substitution between digital RMB and third-party payment.
“The share of digital renminbi has risen, which means that the share of Alipay and WeChat will decline. In this link, the central bank should consider how to motivate Alipay, WeChat and other institutions to participate in the promotion of digital Renminbi. The application of digital Renminbi needs to rely on Alipay, WeChat and other offline scene expansion and two-dimensional code penetration. Zou Chuanwei said that an incentive compatible design can be envisaged. If Alipay and WeChat pay to help promote the application of digital renminbi, they will be able to earn more interest income in the central bank’s payment payment.
Regarding the relationship between digital money and payment tools such as Alipay, Mu Changchun, director of the digital Monetary Research Institute of the central bank, said at the the Bund financial summit this year that digital money and Alipay payment tools are not in the same dimension. WeChat and Alipay are the financial infrastructure, the purse, and the digital renminbi is the payment tool, the content of the wallet.
Mu Changchun said that in the context of electronic payment, WeChat and Alipay carry money in the commercial bank deposit. After the issuance of the digital renminbi, they can still pay with WeChat Alipay, but the contents in the purse increase the central bank’s currency. At the same time, Tencent and ant’s commercial banks are also operating agencies, so there is no competition with digital RMB.
Cheng Lian believes that retail digital currency can not only be used as a traditional payment tool, but also undertake some other functions. For example, different shares and different service life can be set according to different users, so as to better realize the relevant policy intention. This is a bright spot of digital currency compared with traditional cash, but compared with the existing bank payment system and third-party payment, the advantage is not big, because the latter has no technical difficulties in realizing these functions.
What is the impact on monetary policy?
The R & D of digital RMB has been quietly accelerated. What impact will it bring to monetary policy and financial supervision?
Not long ago, fan Yifei, vice president of the people’s Bank of China, published an article “Analysis on the policy implications of M0 positioning of digital RMB”. According to the article, digital RMB is mainly positioned at M0, which is the digital form of legal tender. Digital RMB does not pay interest and is non-profit. It pursues the maximization of social benefits and social welfare. Therefore, the people’s Bank of China implements a free strategy consistent with cash for digital RMB.
Cheng Lian said that the cash that digital RMB intends to replace is not generally considered as a tool for monetary policy operation, so its digitization will not have a great impact on monetary policy unless the introduction of digital RMB leads to relatively large changes in financial structure.
In the process of implementing the pilot project of digital RMB red envelope in Shenzhen before, it adopted the form of limiting the amount: 10 million yuan of “enjoying Luohu digital RMB red envelope” was issued to individuals in Shenzhen, with a total of 50000 places, and the amount of each red envelope was 200 yuan. However, this pilot project only uses a very simple smart contract, and the “touch and touch” function of digital RMB dual offline payment has not been put into use. It is reported that under the “dual offline payment” mode, both parties can directly complete offline transactions through two mobile phones without network or poor signals such as subway, airplane and remote areas.
Cheng Lian believes that in the future, the amount of RMB may still be limited in order to prevent the exchange of digital cash from changing significantly with the fluctuation of interest rate. Otherwise, it will not only lead to financial risks, but also cause a great blow to commercial banks, including forcing banks to hold more liquidity and even forcing commercial banks to make high-risk investment to ease their capital Profit pressure caused by rising gold cost.
“There is also a risk of off-line touch function, which means that once the program is cracked, malicious attempts may use the offline period to conduct transaction fraud. Therefore, it is better to keep the digital RMB as “change” by means of quota, and the corresponding risk will be much smaller. ” Cheng Lian said.
Zou Chuanwei said that the introduction of central bank digital currency by any country will not completely abolish cash, and cash will still be in circulation. The digital currency of the central bank needs at least a threshold such as smart phones, and cash is closer to zero threshold. However, as cash still exists, it is not necessary to implement negative interest rates through the central bank’s digital currency. From the current design of the central bank digital currency, no interest payment is the mainstream.
How to determine the standard of cross-border payment?
At present, digital RMB mainly focuses on domestic application. However, many views hold that CBDC, including digital RMB, has obvious cross-border advantages, which can reduce cross-border payment costs.
Zou Chuanwei said that the central bank’s digital currency has retail type and wholesale type. In cross-border payment, both ways are feasible, but there is no final conclusion on which mode is the main one. The cross-border use of digital RMB is fully established in theory.
“Foreign businesses can open digital RMB wallets and cross-border transactions. This approach will be a beneficial supplement to the current cross-border payment and clearing infrastructure, clearing bank mechanism and agency bank mechanism. ” Zou Chuanwei said.
It is reported that at present, the Singapore monetary authority and the Bank of Canada, the Hong Kong Monetary Authority and the Thai monetary authority, the Bank of Japan and the European Central Bank have all tested wholesale digital currencies. The purpose is to improve the current real-time gross settlement system and shorten the chain of agent banks.

Zou Chuanwei believes that if cross-border synchronous settlement between two currencies involves cross chain operation of blockchain. For example, the Digital Hong Kong dollar and the digital Thai baht are not in the same blockchain system, and there is a cross chain problem in the interaction. But at present, the cross chain technology is not perfect, and it still faces technical bottlenecks.
In addition, in the process of cross-border payment in the future, how central banks should cooperate also involves the issue of standard setting.
Zou Chuanwei said that the bank for International Settlements (BIS) and the financial stability Council (FSB) are taking the lead in various studies, which will involve multiple levels of standards in the future: first, technical standards, such as whether to adopt distributed account books, as well as security, privacy protection, regulatory compliance and other aspects; second, economic design, such as whether the central bank adopts wholesale or retail digital currency, and whether to pay interest And how to support cross-border synchronous settlement.