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Digital currency vs cryptocurrency, the battle of monetary sovereignty that the central bank cannot lose



The private sector is challenging the central bank and its role. Editor's note: Following the recent decision by the People's Bank of China to reaffirm that financial institutions are not allowed to conduct virtual currency-related businesses, Federal Reserve Chairman Powell also made a high-profile voice last week, pointing out the risks of cryptocurrencies and announcing that the Federal Reserve will disclose the current regulations on the central bank's digital currency this summer. view. Meanwhile, European Central Bank Vice President Guindos, who is considering issuing a digital currency called Britcoin, said Bitcoin is an asset with very fragile fundamentals. What are the reasons why central banks frequently "suppress" cryptocurrencies? Most people go to the Bahamas for the sun and surf, but central bankers from a number of countries have been visiting recently for another reason: to investigate the use of the country’s new digital currency, the Sand Dollars. The Bahamas is one of three countries currently launching digital currencies, the others being China and Cambodia. Now, "sand dollars" can be placed in mobile wallets on smartphones. If you want to buy beer, you only need to scan a QR code, which is much more convenient than swiping a credit card or using dirty paper money. While digital currencies are not yet widespread, countries are racing to launch digital currencies as competition between cryptocurrencies and currencies such as the U.S. dollar intensifies. According to data from PricewaterhouseCoopers (PwC), more than 85% of central banks are conducting research on the digitization of their national currencies, some central banks are conducting experiments, and others have launched pilot projects. Among the major economies, China took the lead in launching the digital renminbi, and has now injected more than US$300 million worth of digital renminbi into the economic system, and it is expected that the scope of promotion will be further expanded next year. The European Central Bank, the Bank of Japan and the Federal Reserve are also conducting research on digital currencies, the Bank of England may issue a digital currency called Britcoin, Sweden's e-krona is being tested, and the country could become the first country to go paperless by 2023 s country. University of Johannesburg professor urges South Africa to finalize cryptocurrency policy to become a digital currency innovation center: On September 27th, Johannesburg University professor Rabelani Dagada urged South Africa to finalize its cryptocurrency public policy if the country still wants to become a digital currency innovation center. policy. In an article published by Itweb, Dagada reminded South African authorities that continued efforts to stifle cryptocurrencies will not achieve their desired goals. He added that regulators must learn from history and that vehemently opposing an emerging innovation does not kill it. While South African authorities have not strongly opposed cryptocurrencies, they have refused to allow them to become mainstream. To illustrate, Dagada cited the Johannesburg Stock Exchange (JSE) refusal to approve Sygnia’s application to list a Bitcoin ETF. However, Dagada maintained that if the JSE approves the application, South Africa “has the potential to become a hub for cryptocurrency innovation, especially given South Africa’s highly sophisticated financial services presence among developing economies.” However, Dagada noted in the article , despite opposition, new technologies always end up prevailing. The formalization of cryptocurrencies would also benefit South Africa, as they contain a significant amount of taxable tax. ( [2021/9/27 17:09:35] Although funds are already flowing around the world through digital networks, central bank digital currency (CBDC) is a new tool similar to those currently circulating in private networks. digital tokens. Individuals and businesses can transact using the CBDC through an app on a digital wallet. CBDC deposits are liabilities of the central bank and will generate interest, similar to deposits placed in commercial banks. A CBDC would also allow decentralized bookkeeping, making it easier to program, track and transfer around the world than existing systems. The Information Security Standardization Committee released 58 national network security standard projects, including digital currency security research: Recently, the National Information Security Standardization Technical Committee issued the "Notice on the 2021 Network Security Standard Project". The notice shows that in accordance with the relevant provisions of the "National Information Security Standardization Technical Committee Standardization and Revision Work Procedures", the 2021 network security standard project approval work has been completed. The project list shows that 12 standards were formulated, 17 standards were revised, and 29 standards were studied, involving personal information protection, data security, digital currency security, face recognition security, etc. Among them, the Digital Currency Research Institute of the People's Bank of China, the Financial Technology Research Institute of the People's Bank of China (Shenzhen Financial Technology Research Institute), and the Yangtze River Delta Financial Technology Co., Ltd. participated in the research project of "Digital Currency Security Risk and Standard Research". (Mobile Payment Network) [2021/9/1 22:52:00] In the face of emerging cryptocurrencies and payment systems, the pressure on the central bank to develop CBDC is increasing. The hot bitcoin is not yet a threat because it is very volatile, more volatile than the Venezuelan bolivar. In addition, many bitcoin investors buy bitcoins for storage rather than use, and the speed of the bitcoin blockchain network is relatively slow. But the overall size of the cryptocurrency market is expanding and currently stands at $2.2 trillion, with bitcoin accounting for half of it. Central banks are particularly concerned about “stablecoins,” non-government-issued digital tokens pegged to a currency at a fixed exchange rate. Stablecoins are increasingly used both in domestic and foreign transactions, especially in developing economies. Both tech and financial firms are interested in integrating stablecoins into their social media and e-commerce platforms. Ronit Ghose, global head of banking research at Citigroup, said: “Central banks treat stablecoins like taxi drivers treat Uber, they see them as interlopers and External threats.” Quotes | Morning Digital Currency Market Report: According to data from the Huobi trading platform, the latest transaction price of BTC is $7973.98, the highest price is $8022, and the lowest price is $7917.14. The transaction volume is 23,500, an increase of 0.28%; The transaction price was $174.18, the highest price was $175.15, the lowest price was $171.89, and the transaction volume was 455,100, an increase of 0.43%. %. [2019/10/17] There are many stablecoins in circulation, the largest of which is Tether, which currently has 51 billion USD in circulation, compared to 2.2 trillion USD in circulation. A Facebook (FB)-backed stablecoin called Diem could launch soon. A pilot program for Diem, which has backing from Uber and others, is likely to launch this year for Facebook's 1.8 billion daily users. Diem has the potential to spread rapidly, increasing the pressure on central banks. Tobias Adrian, a financial adviser to the International Monetary Fund (IMF), said: "What really changes the debate about cryptocurrencies is Facebook, and Dime will combine stablecoins and payment platforms, and it will be targeted at users. The group is very large, which may create a powerful force." The more important force behind the birth of CBDC is the rapid diversification of currencies and payment systems. In the next few years, people are likely to use bitcoin as a store of value, while using stablecoins pegged to the euro or US dollar in transactions. Ed Yardeni, an economist at Yardeni Research, said: "The private sector is challenging the central bank and challenging the role of the central bank." A typical application: People's Venture Capital issued an article today stating that "quantitative trading" represented by "moving bricks", a term that is a little strange in the eyes of ordinary people, is becoming hot in the digital currency circle. Although the quantitative strategies adopted by large and small digital currency quantitative trading teams are generally similar to the strategies used for arbitrage in the traditional foreign exchange market and futures market, they have also played new tricks, and moving bricks is a typical example. [2018/8/5] Of course, the US dollar will not disappear. Countries around the world have a large amount of US dollar reserves, and almost all commodities from computers to steel are also priced in US dollars. But every fiat currency now faces stiffer competition from cryptocurrencies or stablecoins, whose widespread use could upend the market because they are not backed by government assets. Once the stablecoin is hacked or crashes, it will lead to a run or financial panic. Additionally, since stablecoins are issued by banks or other private entities, they pose credit and collateral risks. As businesses begin to turn to these digital currencies and other cryptocurrencies and peer-to-peer networks, governments risk losing control of the monetary policy that central banks use to control inflation and maintain financial stability. “Central banks need to maintain monetary sovereignty by issuing digital currencies,” says Markus Brunnermeier, an economist at Princeton University. For example, the Federal Reserve expands or reduces Monetary base, thereby managing the money supply, but "if people no longer use the currency issued by the Federal Reserve, the realization of the above process will go wrong." But the central bank's introduction of CBDC is not entirely for defensive purposes. Proponents of CBDC believe that the introduction of CBDC can bring economic and social benefits, such as reducing transaction costs for consumers and businesses, improving the efficiency of monetary policy, and more likely to benefit those who do not have bank accounts. CBDCs also help reduce money laundering and other illicit activities that are currently conducted in cash or cryptocurrencies. In addition, even if the central bank cannot prevent the rise of digital currencies issued by the private sector, the emergence of CBDC can at least promote fair competition. Digital currency analyst Xiao Lei commented on Buffett: If he lives another ten years, the possibility of investing in Bitcoin is very high: Digital currency analyst Xiao Lei wrote today: "If Buffett lives another ten years in the future, he will invest in Bitcoin-related companies. The possibility is very high. I don’t know whether he will choose to invest in an exchange, or choose to invest in a wallet, or something similar to bitcoin banking. In short, he may invest in companies that hold a large number of bitcoins and bitcoin businesses. Just like his investment in Wells Fargo, Bank of America and other companies. Strictly speaking, Buffett has already invested in the Bitcoin industry, because Goldman Sachs and others have already been involved in the Bitcoin business.” [2018/5/12] Although the CBDC The topic has been hotly debated in the academic circle for many years, but the pilot project launched by China last year is the real start of the first year of CBDC. Analysts say China aims to allow the digital yuan to enter cross-border transactions and international commerce. The yuan now accounts for 2.5% of total global payments, according to Morgan Stanley, well below China's 13% share of total global exports. The combined transaction value of apps such as Alipay and WeChat in China now exceeds the combined global transaction value of Visa (V) and Mastercard (MA). These apps in China have also developed into diversified platforms integrating savings, loans and investments. A CBDC would help regulators monitor the flow of money flowing through these applications, and could also prevent stablecoins from subverting fiat currencies. "This is why China's central bank launched a digital yuan, and it needs to use it to control the sovereignty of the monetary system," said Chetan Ahya, chief economist at Morgan Stanley. Momentum is also gaining on the Internet, targeting those without bank accounts or paying high fees for basic services such as check cashing. According to the Federal Deposit Insurance Corp, about 7 million U.S. households, or about 5% of the total, do not have bank accounts. Congressional Democrats recently proposed a digital dollar wallet called FedAccount, one of the purposes of which is to benefit this group of people. The government can also formulate economic policies in a more targeted manner through CBDC to improve policy efficiency. Stimulus checks could be held in digital dollars in digital wallets, eliminating fees charged by checking accounts or apps. In addition, CBDC allows people to obtain funds faster, and it is also convenient for the government to observe the real-time use of funds. CBDC can also be programmed, and the stimulus check in the digital wallet can be set to be valid for three months, so as to encourage people to consume as soon as possible and achieve the effect of boosting the economy. Researchers at the Bank of England predict that if the digital dollar can be widely circulated, the annual economic output of the United States will be permanently increased by 3%. This view may be exaggerated, but central banks, including the Federal Reserve, are now building a system for banks to settle retail transactions almost instantly, 24/7, and at low cost. CBDC can be introduced into this system, reducing transaction costs and speeding up business processes. This reduces economic friction and increases productivity. Some economists also see CBDC as a monetary policy transmission channel. For example, if the central bank charges a 0.25% fee on CBDC deposits of $1 million or more, this could disincentivize consumers and institutions from hoarding savings during an economic slowdown. "If the wealthy exchange their funds for cash or equivalent securities, there will be a high cost to the macroeconomy," said Andrew Levin, an economist at Dartmouth College. It can suppress the occurrence of this situation.” However, the controversy of digital currency is also great, and its promotion still needs to overcome a series of obstacles such as technical problems and privacy issues. For example, digital currencies make it easier for governments to monitor private transactions, so strong measures of anonymity are needed if CBDCs are to be widely used in North America or Europe. Chinese officials have previously said that a CBDC issued by the People’s Bank of China would guarantee citizens’ right to privacy, but critics disagree. In addition, commercial banks are also facing challenges. The central bank will join in the competition with commercial banks in the field of deposits, which will erode the interest income of commercial banks and lead to an increase in financing costs. Various solutions have been proposed for this, including compensating commercial banks for providing CBDC services. The deposit rate of commercial banks must be competitive, so that deposits will not be snatched away by the central bank. But even under a two-tier financial model, commercial banks could lose deposits, forcing them to turn to less stable and costly debt or stock markets for funding.


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