DCEP | The latest statement by Mu Changchun from the People's Bank of China defines that Bitcoin and Libra are harmful to national monetary sovereignty.

On the 25th, Mu Changchun, Director of the Digital Currency Research Institute of the People's Bank of China, gave a detailed explanation at the 2nd Bund Financial Summit based on the policy implications analysis of the digital renminbi M0 positioning by Fan Yifei, Deputy Governor of the People's Bank of China. He also responded to many external questions. Source: Analysis of the Policy Implications of the Digital Renminbi M0 Positioning Watch the video here: https://www.youtube.com/watch?v=jIqQeq5lJ_g

Latest Definition of Digital Renminbi

According to Mu Changchun, the definition of Digital Currency Electronic Payment (DCEP) has been iterated multiple times, and this is the latest version:

"Digital Renminbi is the digital form of legal tender issued by the People's Bank of China, operated by designated operators for public exchange, based on a broad account system, supporting loosely coupled functions with bank accounts, equivalent to paper money and coins, with value characteristics and legal compensation, supporting controllable anonymity."

Digital Renminbi Exchangeable for Cash

Mu Changchun stated that there were rumors claiming that individuals in Shenzhen were forced to accept digital renminbi for second-hand house transactions, and rumors that digital renminbi could not be exchanged for gold or foreign exchange. He denied these rumors and clarified that in the pilot in Shenzhen, digital renminbi was only distributed to promote consumption and there was no trial scenario involving second-hand houses. He also stated that digital renminbi is equivalent to paper money and coins, and as long as it is legal tender, digital renminbi can be used for transactions.

Battle between Private and Officially Issued Currency

Mu Changchun mentioned that with every technological advancement in history, there has been a battle between privately and officially issued currencies. Private currency issuers determine the weight and standards of the currency, which increases the social transaction costs. He believes that in recent years, the emergence of Bitcoin and global stablecoins like Libra have attempted to play the role of currency and have initiated a new round of battle between private and legal tender currencies. Therefore, the pressure on China to digitize its current cash is increasing.

Mu Changchun stated: "These cryptocurrencies handle payment transactions in a decentralized manner, which will erode our national monetary sovereignty."

Insufficient Financial Inclusion with Existing Electronic Payment Systems

Mu Changchun mentioned that although the use of cash is declining, the absolute amount is still increasing. This proves that the digitization of legal tender in the retail sector is unable to keep up with demand, especially for remote areas and the elderly who are weaker or resistant to digital products. He believes that electronic payments not only lack financial inclusivity for these people but also face rejection.

He believes that money is a public product, and the central bank has a responsibility to provide more universally convenient digital central bank currency by digitizing M0.

He also mentioned that the central bank is currently developing products suitable for the use of digital renminbi in remote areas and by the elderly.

No Competition with WeChat and Alipay

Mu Changchun explained that there is a misconception that digital renminbi may conflict with WeChat and Alipay. He stated that WeChat and Alipay are entirely different from digital renminbi. WeChat and Alipay are financial infrastructures under retail payment scenarios, acting as wallets, similar to highways for circulating commercial bank deposits. With the introduction of digital renminbi, WeChat and Alipay simply have an additional payment option, which is the money in the wallet. Ant Group and Tencent are both operators and do not compete with digital renminbi.

Digital Renminbi Upholds Centralized Management: Market Demand

Mu Changchun mentioned that historically, central banks were not born from national governments but were market-driven products. This is because the market discovered that only through the centralized management of commercial bank coin reserves by the central bank could the clearing and settlement costs be reduced, and cyclical risks be avoided. The issuance of digital renminbi monopolized by the central bank is also based on the same market cost considerations, and as a way to prevent cryptocurrencies from eroding monetary sovereignty.

He believes that centrally managed digital renminbi can increase merchant fund turnover, improve the efficiency of monetary policy execution, break down retail payment barriers, and combat money laundering and terrorist financing, thereby maintaining financial stability.

• Manage issuance quotas, 100% reserves
• Unified technical standards to facilitate interoperability
• Monitor and analyze the circulation of digital renminbi
• Coordinate the management of digital wallets, jointly developed with operators

He also mentioned that fake digital renminbi wallets have been detected in the market, but the cost of anti-counterfeiting measures is lower compared to the era of paper money.

Digital Renminbi Equivalent to Non-interest Bearing and Fee-free

Mu Changchun stated that digital renminbi is equivalent to paper money and therefore does not bear interest. He also mentioned that as a public product, digital renminbi, in terms of its value transfer system and financial infrastructure, whether issued by the issuer or commercial banks, does not charge fees for exchange and redemption. As for whether there will be charges for transfers between merchants, he believes it is subject to market mechanisms. Currently, exchange services can only be provided by commercial banks and opened to third-party institutions for circulation.

Non-mandatory Use of Digital Renminbi, Paper Money Not Phased Out

The exchange of digital renminbi is bottom-up. Mu Changchun stated that the use of digital renminbi will not be mandatory; it will be based on demand, with issuance corresponding to the actual needs. He believes that as long as the public needs paper money, it will continue to be issued, and there will be a long coexistence of digital renminbi and paper money in the future.