The accelerated advent of the digital currency era injects new imagination into the payment market

By Charlie Wu

At the Boao Forum for Asia on April 18, Li Bo, deputy governor of the central bank, revealed that the next step will continue to expand the scope of digital renminbi pilots, and conduct pilots in more scenarios and more cities. The "digital currency era" may be the first to come in China.

Fan Xiaojuan

Zhong Lun Law Firm

Not long ago, Chengdu, as one of the recent pilot cities for digital renminbi (DCEP), distributed 200,000 DCEP red envelopes to the public, with a total amount of 40 million yuan, and became the fourth large city in China to conduct related pilots. According to the requirements of the Ministry of Commerce, DCEP will also be opened in 28 provinces and cities including Nanjing, Hangzhou, and Hainan, including major venues for the Beijing 2022 Winter Olympics.

The free red envelope of 200 yuan per capita has allowed many Chinese people to taste the sweetness of digital currency for the first time, but the concept of digital currency is actually not new: as early as 2014, my country started the research and development of DCEP. Talking about the rapid promotion of DCEP, lawyer Fan Xiaojuan, a partner of Zhong Lun Law Firm, pointed out the special background. In the past two years, "due to the epidemic situation, changes in the international situation and the need for the internationalization of the RMB, the process of implementing digital RMB has accelerated."

China is not alone in this sudden acceleration: the latest survey by the Bank for International Settlements shows that by the end of last year, 86% of the central banks of more than 60 countries surveyed had started research on digital currencies, and at least 36 The central bank has released the progress of digital currency work. Among them, 10% of the national central banks have launched digital currency pilot projects.

Russian digital currency owners are warned to submit tax documents before the beginning of next month: Russian digital currency owners are warned that tax inspectors will contact them after one month, and miners, currency holders, and traders need to declare profits. Although a comprehensive crypto bill is still a year or more away, changes to the tax code have already been made, meaning that anyone earning a profit from crypto activities in Russia will need to pay taxes in 2019. Russians have until early next month to submit tax documents, including details of their cryptocurrencies, and individuals will be charged a flat rate of 13%. (CryptoNews)[2020/7/1]

Liu Yang, a senior lawyer at DeHeng Law Firm, also noticed the status quo of accelerating digital currency research in various countries. He pointed out that, therefore, DCEP should be put into application as soon as possible when the conditions are ripe. In order to maintain the leading position of digital currency in the country, China will take the lead in the competition of the future world currency system.

Regulatory Status

According to the relevant definitions of the People's Bank of China, DCEP is a legal currency in digital form issued by the People's Bank of China, which is operated by designated operating agencies and exchanged to the public. It is equivalent to banknotes and coins, and has value characteristics and legal compensation. Therefore, lawyer Liu Yang told ALB that the current relevant provisions of Chinese law on cash still have certain applicability to DCEP.

Deputy Director of the National Finance and Development Laboratory: Digital currency will not have a great impact on third-party payment institutions: Yang Tao, deputy director of the National Finance and Development Laboratory and assistant to the director of the Financial Research Institute of the Academy of Social Sciences, said that if digital currency really lands in the future If not, the impact on third-party payment institutions will not be great, for four reasons. First, from the perspective of development, digital currency is a supplement to the retail payment system, providing one of the diversified options; second, the issuance scale of digital currency is relatively limited; third, the technology, efficiency, and process of digital currency still need to be continuously optimized; Fourth, the application scenarios and user habits of digital currency also need to gradually adapt. (21st Century Business Herald) [2020/4/22]

Although the essence of DCEP belongs to "cash in circulation", in other words, it is no different from cash, but "my country's current legal system related to it is still in the legislative stage, and there is still a lack of direct legal basis." Lawyer Fan Xiaojuan added, " It is believed that with the continuous advancement and maturity of the DCEP experiment, the legal system will be further clarified and standardized.”

In July 2020, "Digital currency" was officially mentioned for the first time in the "Opinions on Providing Judicial Services and Guarantees for Accelerating the Improvement of the Socialist Market Economic System in the New Era" jointly issued by the Supreme People's Court and the National Development and Reform Commission. The Opinions state that China will “strengthen the protection of new types of rights and interests such as digital currency, online virtual property, and data.” The release of the "Opinions" makes digital currency included in the scope of judicial protection for the first time.

Announcement | Zhongzhuang Construction: plans to set up a technology company with blockchain as the core, and currently does not involve digital currency: Zhongzhuang Construction (002822.SZ) recently responded to investors' questions, stating that blockchain technology has been gradually applied to In the financial field, the blockchain technology company to be established by the company is a technology company that uses blockchain technology as the core, integrates the company's supply chain, and builds a credible public ledger so that financial institutions can provide financing and financial products, thereby reducing the cost of companies and supply chains. business financing costs. The company is not currently involved in digital currency. (Sina.com) [2019/10/15]

It is noteworthy that in October of the same year, the People's Bank of China issued the "People's Bank of China Law (Draft for Comments on Revised Draft)". "Article 19 of the "Draft" adds a second paragraph on the basis of Article 17 of the current "People's Bank of China Law" that stipulates the RMB unit, 'RMB includes physical forms and digital forms'." Lawyer Fan said, "This If this amendment comes into effect, it will clarify that digital renminbi is the legal form of renminbi, laying a legal basis for the issuance of digital renminbi.” In addition, the draft also reiterates that, in addition to DCEP, the production and sale of digital tokens to replace renminbi is widely prohibited.

Considering the legal risks that may be caused by the rapid development of DCEP, lawyer Liu Yang reminded: "It is necessary to truly handle the efficiency and convenience of DCEP and the leakage of personal information and data, strengthen currency supervision and protection of personal privacy, digital currency electronic payment and RMB digitization, and privacy protection. The contradiction between data security and mobile interoperability can realize the "initial intention" of DCEP."

News | Jincai Internet: The company has not participated in the research and development or testing of digital currency: Jincai Internet stated on the interactive platform that the company has not participated in the research and development or testing of digital currency. (First Finance and Economics) [2019/9/24]

Introduce competition

DCEP will adopt a two-tier operating system in the future, which means that the central bank first exchanges the digital currency to commercial banks, and then these commercial banks exchange it to the public. According to lawyer Liu Yang, the system will not change the existing currency delivery system and binary account structure, and will not compete with commercial bank deposit currencies. Therefore, the DCEP operating system determines that it cannot be separated from the characteristics of commercial banks.

In addition to the four major state-owned commercial banks, Bank of China, Industrial and Commercial Bank of China, Agricultural Bank of China and China Construction Bank, which will provide DCEP-related services, MYbank supported by Ant and WeBank supported by Tencent will also join the pilot implementation of DCEP. MYbank said in a statement that, as one of the DCEP research and development institutions, it will steadily advance the pilot testing work in accordance with the overall arrangement of the People's Bank of China.

Private banks participate in the DCEP pilot and stand on the same starting line as state-owned banks. According to Lawyer Fan, this shows that the regulators treat market players equally, and will give private banks the opportunity to participate in the new RMB business, which will help establish a fair and effective orderly banking competition system. At the same time, private banks will also exert their "catfish effect" to stimulate the innovation of the banking industry and the improvement of service quality.

Analysis | Golden disk: The appreciation of the U.S. dollar has led to third world countries beginning to favor digital currencies: Comprehensive analysis of the golden disk: Data show that Venezuela has become the second largest trading market for DASH. With the appreciation of the U.S. dollar, the currency systems of many developing countries have problems. In order to cope with inflationary pressures, people in these countries choose to buy digital currencies as a hedge. However, for the risk of local currency depreciation brought about by inflationary pressure, the risk of digital currency legalization also exists, so investors are advised to be cautious. DASH rose 0.22% today and 27.9% on the 7th. [2018/8/29]

Lawyer Liu Yang added that private banks with extraordinary strength, "with the support of Internet technology giants, can also strengthen the pilot and promotion of DCEP in different fields and perspectives, which will undoubtedly be more beneficial to the overall development of DCEP."

Lawyer Fan also agrees with this point of view, because "MyBank, WeBank, etc. have formed a certain market size, and have cultivated the habit of using cashless payment among a considerable number of users." She believes that "private banks' Participation enables DCEP to adapt to diversified payment habits, thereby contributing to the promotion of DCEP and the smooth and orderly transition of RMB from physical currency to digital currency."

Break Monopoly

In China, mobile payments are ubiquitous, but the most commonly used methods are almost all controlled by the two Internet giants. The steady advancement of the DCEP pilot may mean that China is curbing the dual monopoly of the payment market, which will affect the development of existing payment forms to a certain extent.

In the opinion of Lawyer Fan, the launch of DCEP does have a blow to the payment market and financial technology companies. As far as legal supervision is concerned, "the payment market/fintech has indeed experienced disorderly competition in recent years. Ensuring financial security and preventing financial risks are the basic duties of financial supervision." She said, "my country's supervision of financial technology will Follow the principle of 'resolutely breaking monopoly, correcting and investigating acts of unfair competition, and maintaining fair competition market order'."

Lawyer Liu Yang told ALB that for users, there is another very real problem: the cash nature of DCEP determines that it cannot generate interest, while Alipay and WeChat can provide users with more financial management solutions. But in a sense, Lawyer Liu believes that the special advantages of DCEP are more advanced than Alipay, WeChat payment, etc., because it "can realize value transfer without an account, without a handling fee, and without networking."

Lawyer Fan also pointed out that the introduction of DCEP "will have more room for imagination" for the development of the payment market and financial companies. "Before the launch of DCEP, due to the lack of legal digital currency, and 'virtual currency' such as Bitcoin is not legal currency, it is not allowed to circulate as currency in the market, some innovative businesses lack payment tools at the technical level, and lack legal support at the compliance level." She said, "After the launch of DCEP, there may be many innovative businesses emerging, which will activate the financial market and serve the real economy."

Opportunities and challenges

Talking about the impact of DCEP on financial technology companies, Lawyer Liu Yang pointed out that future competition will take place in the transition from "payment channel" to "payment carrier": Different from payment channels such as Alipay and WeChat payment, the essence of DCEP is the carrier , which is equivalent to a "wallet".

"The main competition track for financial technology companies in the future is the 'wallet' field. Whoever has a good 'wallet' and users are willing to use it will have more traffic. In this regard, the existing ecology of financial technology companies It can also be grafted into the DCEP field, there will be more and more derivatives, and the audience of 'wallet' will become wider and wider." Lawyer Liu said.

In addition, he also interpreted the centralization attribute of DCEP. He told ALB that the "controllable anonymity" adopted by DCEP makes the transaction of virtual digital currency traceable. Therefore, under the premise of properly handling user privacy and data security, the tracking of transactions may realize all-round supervision of currency data, so as to "effectively curb financial, tax-related, and foreign exchange-related crimes, and at the same time be more conducive to cracking down on gray black industry".

Lawyer Fan raised hidden concerns about the compliance of cross-border business of financial technology companies, because such companies "have a considerable part of cross-border business, which requires them not only to abide by domestic laws and regulations, but also to pay close attention to changes in international rules, otherwise could face severe penalties and even a ban from business operations."

Attorney Liu also agrees with this. He believes that the development of DCEP will force financial technology companies to pay more attention to compliance, making "some companies that really want to do things and can do things gradually grow along the path of compliance, while those Pseudo-fintech companies that walk in the gray area are destined to be eliminated.”

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Liu Yang

This article was also published in the April issue of the China edition of Asian Legal Business, please click here to view the details of the April issue.

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