China's to launch its own digital currency

[Music] on today's world insight with Jan way China's central bank on the brink of launching a digital currency how oldest revolutionized the monetary landscape in China and abroad and we meet a scholar who's calling revolves around friendly china-us ties how can people on both sides maintain the relationship here is our host Tian way hello and welcome to world insight coming to you live from Beijing on CGT and we begin today's program with crypto currency from China the People's Bank of China could become the world's first the central bank to introduce its own digital currency that is according to some media reports many say the proposed the currency could encourage global use of China's yuan but is that really the case what's going to be the potential if there is a central bank digital currency before we get down to the discussion let's take a look this is the world's first central bank digital currency around the corner the People's Bank of China said it's speeding up the development of a legal digital currency the central bank has applied for 74 patents involving digital currencies to the National intellectual property administration the soon to be unveiled digital currency will be backed by the reserves of valuable assets that the commercial institutions deposit in the central bank at the initial stage the new form of money is for domestic use only in the future it is intended to adopt the same exchange rate as physical money electronic payment has grown by leaps and bounds in recent years in China many believe China's proposed a digital currency will sync up with other popular payment platforms like WeChat and Alipay meanwhile some experts say this can become a mechanism used in everyday transactions all around the world which could internationalize the RMB [Music] for more on the potential of a proposed to cryptocurrency from China we have in New York Jason Stroh who is a senior analyst from the multivariate solutions I hope I pronounce that name right in Hong Kong we are joined by Professor alga the president of the Hong Kong Institution for international finance last but not least the chee cheong assistant director from the International Monetary Institute at University of China based in Beijing gentlemen welcome to our program mr. Qiu according to media report there is the potential China could issue the crypto currency or shall we call the central bank digital currency now explain to us what exactly does that complicate the phrase really means mr. Qi well I think that crypto currency the name itself actually to be can be a little bit confusing to most of people well the only thing it is similar to what we can we know about cryptocurrency it's Justin used a cryptocurrency technology so which have been protected by the you know all kinds of the pass code and you know crypto technology but actually this is nothing more just like in general RB we're using in the daily days I assume you probably use it you know like WeChat pay or the Olly page just consider this cryptocurrency just something we issued by the Central Bank of China and be used out of China in an international arena that's something like that but it's nothing to be similar with they like the Bitcoin or like some other things like that is that also your take a professor shall tell me more about your understanding what's really the real essence of this concept professor shell well the central bank digital currency is a very powerful tool because it actually includes what we call smart contract capabilities because it can trace the lawful you know in the use of currency for both macro and micro transaction purposes so and also it is built on the trust on the government sovereign government so that in that sense you know is it fundamentally different from the creep crypto currency which it does not really have the trust and is also the enforcement capabilities hmm mr. scroll also go to yield your understandings here according to the earlier two gentlemen obviously there's a huge distinction between the so called central bank digital currency which China is on the verge of looking at and probably launching we do not not know the timetable and a cryptocurrency for example Libre are coming from the Facebook is it this is fruit yes there definitely meaningly differentiated so crypto currencies are almost something of an unfortunate title because it conflates what their meaning behind them really is they're simply just digital transference something of value doesn't even have to be monetary but the stalwarts of crypto currencies have been an immutability and a lack of any central governing power behind them which is quite different than a central bank issued digital asset or something like Facebook's Libre which is going to be backed by cornucopia of different reserve currencies or something like JP Morgan's stable coins these things are quite different vehicles in the sense that one is still just a sort of a digital extension of what we think of as sort of sovereign central bank backed fiat currency whereas crypto currencies when we think of Bitcoin and aetherium really wholly different vehicles by back by this immutable hash transaction right when you think about it professor shell u.s. dollar is one of the most fundamental currencies shall I say the most fundamental currency being used in our world today now at the time of interesting change of the world and China is thinking about the potential of a central bank a digital currency what is really lying behind the research and also the thinking and brainstorming process professor shell well I think what is important is that the digital currency issued by central bank is much easier to really trace all the uses of the currency on the other hand the US dollar as it is you know in paper form actually there are a lot of things which you cannot trace so that's why it's heavily used by for example drug traffickers and also speculators you know they kind of use it to avoid the monitoring by the regulator's so I think the use of central bank sovereign government you know issued tip to currency is a leaf frog in terms of technology to really you know reduce the risk of the use of you know the currency particularly international reserve currency in the future hmm mr. Schurr also from you about that it seems professor Shaw is trying to suggest there's going to be an increase the degree of security as a result of this and there's also going to be an ultimate transparency in fact when it comes to transactions worldwide so how do you see one side of this visa be the other side apparently paradox but actually very aligned with one another is it true yes I couldn't agree more with Professor shelgon and by the way we're graduated from the same school look nice meeting in here not the intention to invite everyone from the same school but it's great to trace the back of to the alvarado of anyway yeah okay yeah I think we agree with him on just the two levels first of all when the currency goes international there is a lose control situation happening in there American has phased this paradox already for example American issues a lot of in a greenback bills and all over the world but very sadly a lot of things have been used in a trafficking like drug trafficking arms trafficking and human trafficking even so with this money it's hard to trace them so sometimes you can hardly to control them and this fact this kind of money while rewind back into your normal money to rechannel so disrupt your monetary system so it's going to be a danger to infringe your monetary system when Chinese un is going to internationalize as currently we're doing now we're second largest economy is inevitable where our money is going to be internationalized we're going to face the same situation this is like a problem both America and China wouldn't want to see in some other countries if your currency is going to go international you wouldn't want to see that and secondly we're going to see another problem is that we need transparent we need transparent do when your currency goes out to be used by all the people in the world huh you need everybody to trust you so what's this more trustworthy than cryptocurrency Bitcoin well a big use doing a lot of you know underground economy but it's transparent everybody can see what's going on the only thing you have to take away is the anonymous in a Bitcoin and to make it to be a real name everybody can see who is trading with who a company of government to everybody being on the really literally on the same page so it just be more trustworthy that is only one side of story the function of it or shall we say the potential function of it the other side of the story mr. screw if I could go to you about it is who will use it I mean that is going to be a very crucial question isn't it once you have a technology available over there or a currency over there it also has a lot to do with who will use it missus rule what do you think absolutely I mean you think there's certainly something to be said for a currency that's backed by the central government that still as transferable and fungible as a digital asset class that we're talking about so it's plausible given the popularity of mobile payments in China already and the interoperability with the existing platforms it's certainly plausible with any central bank's influence I think that really adopters are going to be sort of sovereign excuse me sort of Chinese nationals and I believe the rumors so far have suggested that it's going to initially just be for a domestic use case but certainly as the global landscape changes in China's you know the yuan status as a default trading currency potentially increases this is a very good vehicle in mechanism with which to sort of internationalize that system so for now I think it's quite clear that just it would be a vehicle that's used on a consumer peer-to-peer level there's a big security benefit from the central bank standpoint which is that in the current mobile payment platforms a huge amount of capital is siloed and kept in their proprietary systems it's actually something of a security risk but the central bank even if the currency is compromised they always have the ability to essentially if it's digital write a few more lines of code and produce more and thereby ensure the security of the capital systems so again I think it would be domestic for now but if we're talking about the increase in early internationalization of the yuan right and the changing perhaps the changing status of the dollar as a default currency certainly I can see it becoming more of a tool for bank to bank monetary transfers perhaps they could eventually observe the Swift Network and things like that you can think about it professor shell I mean the Libra story now aids has been quite interesting a roller coaster ride as Facebook has been enjoying quote-unquote over the past few months to say the least obviously that demonstrates how important it is for a issue of currency that sovereignty right that's also means financial power now if China is have a second option which is a central bank digital currency what does that mean for the other existing or shall I even put it more bluntly dominating currency in the world will the other side quote-unquote feel threatened and therefore use old possibilities to prevent it from happening professor Xiao I know you are not a geopolitical expert but these are interesting questions related to the usual we're talking about here professor well I seeker for R&B so far you know the digitalization of the R&B is going to help a China to really you know do the major progress in its current account convertibility so in that sense you know it is very very important for the whole world because when the R&B becomes convertible on most transactions you know then the international trade investment would be facilitated a much better I don't think in the short term you know it's going to have any threat to other currencies because you know this is just the reducing the so-called transaction cost for the use of RMB but in the future I think something similar to the Libra could actually come out in the future you know based on the experience of Chinese central bank data to currency because it's just a step away from creating digital currency back to a basket to currencies from a single currency so so actually the experiments the innovation in China is actually very important step it's becoming ever more complicated and yet fascinating I have to say with all your explanations mr. story if I could come back to you now if you look at the picture there are several layers of it there's so-called a sovereign key countries and the competition or our cooperation among these economies when it comes to the currency regime that's one thing the other thing is there are multiple kinds of players such as private institutions Facebook is one of those examples with the Libra of opportunity or maybe challenge that you name it so there are several layers of things so how shall we seek out the real nature and potential of this central bank a digital currency that could be in China's horizon compared to all the other different layers of this structure as we speak mr. spool sure perhaps to bring some clarity to it you know we really discussed three what I see as distinct classifications of some sort of digital transference of values crypto currencies that we've been referring to them let's say Bitcoin aetherium and the like are really just served in my view to popularize the notion of a digital transference of value not necessarily tied to under any underlying asset class but they're very meaningfully differentiated because again they're immutable and there's no central governing body governments and central banks therefore probably not terribly happy about any sort of Ascension in their popularity because they can't be controlled and there are all sorts of previously discussed problems when you have an uncontrolled and largely anonymous money supply the other tier are discussing things like Facebook's lira coin JP morgan scoyne other sort of stable coins as well bucket them our vehicles that are all pegged to an underlying fiat currency in Facebook's case really 50 percent is planned to be pegged to the dollar with the rest made up of a smattering of other default global currencies so those are quite different than a central banker and see in the sense that they're really just a mechanism to provide to transfer value digitally but they're designed for the value not to fluctuate they're designed to be totally stable but they are controlled by private institutions that does represent something of a threat I would think to central banks certainly in my view there's something to be said for sort of utilizing the same upsides I think like Lieber might provide with the additional security of the central bank and of course from a country's perspective having all the add the KYC AML stuff baked into their own digital currency that they can create presents quite a big advantage so I see it as a defense a defensive measure against the potential popularity of something like Libre there's sort of three distinct classes that I would bucket them into yeah he's trying to go ahead with this experiment mr. Shute what would that mean for the other economies who are facing one potential or another or shall we say one challenge or of another kind mr. truth well I think I think actually the media and other governments or other economies have ever you know over read the situation I think everybody could watch I overate the situation a lot of people say China China is going to use this new currency to probably to try something new or to become the new you a new universal currency no actually it won't happen trust me it won't happen let me tell you some basic economic ok the reason why the human beings all four countries have so many different currencies and we have to bother so many troubles to do with the foreign exchanges with each other why the basic reason is that we have different production efficiencies among different economies and regions we produced things in different scales was different you know efficiencies that's the reason why we need different currencies so there's never going to be one currency to take over all the world you ought to never do that starting pals never do that so it won't happen what we're talking about here is just a new way to transfer our international you know monies we used to use Swift assistance that is a very stable and a good system we have to say that but it's expensive let me just remind you one fact if one bank want to buy one machine just to record this transactions through this with the code we have to pay 50 thousand US dollars just to register one machine that's right very expensive China is now trying to trying to use a new way a low-cost way more faster way to do so I think you should be welcomed by all the other countries because your country deserves the same rights of do the same thing China tried to be the first one to try the trouble and if it works American can do this European Union can do this and everybody can do this we just well find a new way to transfer and exchange money between each other that's a good news for the whole human beings well if it is that important or if it is that much fun the professor so many would ask happen to other economies also thought about that would China be the first one to think about that or at least to do that or to try that why the others didn't work surely say they failed professor shale you know better than I do please help us blender and better well I think good china has an advantage in developing the central bank due to the currency because the the the economy is so large and already people are using you know WeChat and re pay so most transactions in China actual ready to kill eyes right so but I think in fact the China can reduce the transaction cost dramatically by using digital currency you should have a central bank but I think in terms of the national sovereign currency most important thing is about the trust so so each country was continued to use their own currency even for international transactions people will still want to choose because you know the different government trusted differently by different group of people okay so ultimately I think is the nations days you know reputation and stability you know how people around the world trust that the country that determines whether the currency will become international reserve currency yeah well you sound like a great economist professor shell because you're saying on the one hand let 100 flowers blossom on the other hand it is really the credibility that's gonna eventually nowadays yeah yeah it's actually a competition you know people on both efficiency and also on reputation you know trust you mister screw you agree with that yes to an extent I do think you know the telling the the telling metric is really if transaction costs can be significantly decreased internationally and also you know there is something to be said for a first to market advantage here what you were previously discussing about other countries having attempted this we did actually see this with the Venezuelan petrol it is pegged to petroleum reserves or supposedly although it was never able to be proven but there's there's definitely been attempts albeit not terribly success one's for other nations I've played with this idea and we're seeing rumblings now out of France and Germany other you zone countries reacting to the news of the Libra and the speculated popularity of it so I do think I do agree with the assessment I the future escape is hard to predict at this point it depends if it really is a mechanism that is safe and allows countries to trade internationally with far fewer transaction fees and with much greater degree of expediency versus existing channels like the Swift Network then I do see these like this idea of central backed currencies as just the next evolution of monetary transference maybe not something that will dramatically impact the day-to-day lives on the consumer level because we already as asthma as we've been explaining it we've already sort of live in a world for the majority of transactions certainly in China are digital anyway so from the average person's day-to-day perception I think what's more meaningful is going to be sort of the back and channels for how large sums of capital or that's right and and it's obviously very interesting to see the new trend at therefore I want to ask the final question and maybe we could make an analogy about this issue compared to the other so that our audience worldwide will have a better understanding of the nature of it it's true let me go to you some compare you know issuing the central bank digital currency as thriving Visa be autonomous driving or shall I say driverless cars and even though it is not necessarily needed for now certainly it's gonna be a great trend that would bring a lot of potential do you think that's a comparison that we can do mr. t briefly well you can do that but also it's not quite exact I think something it's definitely something we worst trying now and it's not urgent but actually we should do it now okay mr. fule what you think I think it's an interesting analogy I mean with the potential to disrupt with both is there Inc autonomous vehicles are going to be a much more brazen and stark difference to what we have today versus the Ascension of these potentials central bank back coins again I think the average person average Western and Asian consumer this point is quite used to the idea of numbers on a screen versus a physically tangible sum of funds to disperse so I do think it's potentially very disruptive and positive but also think it's on the next natural evolution of the monetary system all right professor shell last words we have 20 seconds left for you to well I think it's basically a upgrade in infrastructure like a much faster highway you know so that's the analogy alright from the traditional highway now here's the manometric make you high speed to high quality highway fascinating discussion were see kinda where things are going and where the wind is blowing thank you so much professor Shao Gong mr. Chi Cheung and last but not least the Jason through really appreciate the gentleman thank you

Channel: CGTN

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Length: 25min 19sec (1519 seconds)

Published: Wed Sep 18 2019