Fireside Keynote with Mu Changchun of the People’s Bank of China

0:01 hello everyone i'm really excited to introduce our next speaker mr moo cheng chung is director general 0:07 of the digital currency institute at the people's bank of china where he was appointed in july 2019. 0:15 mr mood joined the people's bank of china in 1995. from 1995 to 2004 he worked for the 0:21 international department and his responsibilities covered multilateral and bilateral cooperation 0:26 with international organizations and foreign central banks from 2004 to 2006 he was senior advisor 0:34 to the executive director of the constituency office in 2006 he rejoined the international 0:39 department from 2010 to 2017 he served in a number of positions 0:45 including assistant to the governor and then the deputy director general of the executive office 0:50 in 2017 he was appointed as deputy director general of payments and settlements department 0:56 mr mu is a member of cpmi a member of the fsb financial innovation network and also a 1:02 member of the imf's high-level advisory group on finance and technology mr moo graduated from redmond university 1:09 of china with a ba in economics in 1995 and earned his master's degree in applied finance 1:15 from accurate university in australia in 2000 please join me in welcoming mr mu 1:23 mr mu welcome thank you so much for being here today it's just a real delight to get to speak 1:28 with you thank you i know i know the world is 1:33 watching with great interest china's development of a central bank digital currency 1:39 and the people's bank of china started researching cbdc six years ago way back in 2014 1:47 very early in the process of global countries looking at this can you say a little bit about what 1:53 motivated pboc to begin this work and then what is uh pushing them 1:59 you know pushing you now to really foster the development of a new currency 2:04 okay thank you well personally i would rather to use uh the 2:13 digital fare currency instead of cbdc because i think personally i think digital fair 2:19 currency is more suitable for our 2:27 you know digital version of rmb so now we call it easy and why and 2:34 the ease and why is the digital version r b that is the due to digital fair currency 2:40 of china which uh which is a value based quality account based 2:45 and account based hybrid legal tender with legally with loosely coupled 2:51 account linkage issued by the ppc operated and exchanged by the authorized operators 2:59 including commercial banks payment service providers and telecom operators so that's the uh brief 3:07 introduction of our digital fare currency and as you mentioned that we we started 3:16 our project back to six years ago 3:21 that's the main the top value cases and drivers for this product is firstly is to 3:28 safeguard the monetary sovereignty because you know back to six years ago we have so many 3:35 competitors that private uh digital or crypto assets 3:44 uh came out and that is definitely a threat to the 3:50 monetary sovereignty or independence of our monetary policy of china 3:58 so in order to safeguard the monetary sovereignty we have to start our own version of digital uh 4:04 rmb by the ecmy secondly is to provide a backup or redundancy 4:12 for the retail system retail payment system uh as you may know we have already have 4:19 we have two big giants in terms of uh retail payment system sector uh which includes 4:28 alipay and tempe and people now go out to shopping without any credit 4:35 cards debit cards or their wallets with paper notes paperback nodes or 4:42 coins so those two have already taken 90 almost 97 or 98 4:53 of the whole mobile payment markets so they have already become the 5:00 significant important financial infrastructure in china 5:06 so but for those or i i don't you know i i don't think we we 5:12 cannot let the private sector to run financially slaughter infrastructures but the problem is all 5:19 the private sectors they have their own life cycle 5:25 just in case if they they have any problems with their financial issues 5:32 or there's other operational issues or technical issues that may 5:40 the out the maybe the operational outage in 5:46 some cases that will bring negative impact to the financial stability 5:53 so for that reason as the public goods provider the central bank 5:59 have to step up and provide a backup or redundancy 6:04 for the retail payment system so that's the second reason we have to build uh build our own 6:12 uh digital version of rmb as a payment instrument 6:20 and thirdly is to improve the efficiency of the central 6:25 bank payment system with a wider access and the stronger capacity 6:31 as you may know we have internationally we have a trend that the central bank are obliged 6:38 to provide a wider access and a stronger capacity for the 6:45 payment systems before the introduction of digital currency to 6:52 the general public we have the central bank have already built up 6:59 the whole wholesale payment system like rdgs the bets or the other 7:06 retail payment systems like the credit cards payment systems 7:14 or other fast payment systems but recently 7:20 all the all the central banks are trying to widen the access and improve the 7:29 capacity of the central bank's payment systems and one of the efforts one 7:36 one part of that ask first is to provide access to the general public so digital currency is definitely part 7:44 of that effort so that's the third reason the last but the not least is to improve the 7:51 financial inclusion because in china we still 7:58 as as you know we we we always 8:03 on the underscore that we are still a developing country we have still we have a large part in our 8:12 country we have remote areas in the poor areas a lot of population 8:17 actually is still below they still in the the pearl ship 8:24 not very good shape in terms of the financial or economic conditions so in order to 8:31 improve the financial inclusion especially especially those people without 8:36 a traditional banking account for those people we have provide basic financial services so 8:44 in order to improve the financial inclusion we have to build or develop our own uh 8:51 digital fair currency so that's the top value cases and drivers for our 8:58 project thank you thank you that is incredibly helpful and informative as 9:05 people think about the development of the digital r b i wonder one of the other factors that 9:11 people cite about the desire to move forward is about china's the role of china's 9:19 currency in the global economy and do you think that the development of the digital 9:24 rmb will also help china [Music] use its own currency in more global 9:32 transactions to have the digital rmb become more prominent globally 9:38 well i personally i have to say i have a different view on that because the internationalization 9:46 of a currency like you know hank poison ever said in his article 9:52 that is the technology is never the the most important key for 10:00 internationalization of currency the the the roots and the 10:07 architecture or the uh the whole financial system actually is 10:13 the key factors or key elements for the internationalization of a currency 10:22 so i personally i don't think technology is the the key driver or key elements 10:30 could improve the internationalization of a currency only the rules 10:36 and the the system i mean all the governance issues governance 10:45 the issues could be could be the key of it to improve the internationalization of 10:50 currency so before the improvement of the of the whole system 10:57 the technology is never the answer there's another pencil for maintenance the army 11:03 internationalization so that's my personal view on this on this issue thank you i think that's um 11:12 very helpful as well i wonder for our viewers if you could give people 11:18 an update on the development of the digital rmb 11:23 i know you've been involved in a number of pilots and that these are expanding do you 11:30 anticipate a national roll out soon what can you what can you tell us about the status of the work that has been going 11:37 on in the field well um ppc you know 11:42 you got the digital r b or the ecmy as the important financial 11:47 infrastructure for the future so we have already actively uh carried 11:53 out research and development during the pilot project and 11:58 we actually adopted adopted a rules or primaries of 12:05 two-tier operation two-tier model m0 substitution and controllable 12:12 anonymity and we have already finished the 12:17 the completed the architecture standard formulation research and development of the eastern 12:25 wire functionality and all also we have finished the completed 12:30 the drone debugging and testing of ecma system the as you may know the internal 12:39 clothes pilots have been running shenzhen suzhou and chengdu and also 12:46 this will be conducted in the fall forthcoming winter olympics in beijing 12:53 and uh at present the pilots have made positive progress 13:01 and we have already created a serious use cases and a variety of safe and convenient 13:09 payment functions as of late september to 2020 more than 13:15 12 000 pilot user cases have been implemented covering bill payments catering services 13:23 transportation shopping government services and others 13:28 and aggregates of 172 13:34 and 400 personal or individual digital wallets and 16 000 corporate digital wallets have 13:42 been opened in addition and more than four 13:49 million transactions were processed with the total amount of rmb 2.3 billion 13:57 so and we have already developed multiple payment methods such as qr 14:04 codes visual recognition tap and go such kind 14:09 of functionality some such kind of payment functions 14:14 in addition in order to show gratitude and respect to the medical and health healthy care health care workers 14:22 who have made significant contribution to the fight against the covenant 19 we have 14:29 recently launched the eastern y wrap packet rare packets pilot project in 14:35 cooperation with loho district of shenzhen and some 5 000 14:42 medical and health care workers received alarms in the format of east 14:48 and wide wrap packets provided by the physical support by the municipal municipal government of 14:56 shenzhen it could be used at designated merchants 15:01 in loho district uh in october 2020 we also launched another round of 15:08 easing wire packets pilot also supported by the physical 15:14 funds of lohu district of shenzhen some 50 000 lucky residents 15:20 beyond the laundry received the easement rate packets worth 201 that is 15:28 220 29.9 us dollars each so that's the 15:35 recent update our development of the eastern y pilot projects 15:42 thank you there's an enormous amount of work going on in in so many different uh strategies that uh you're pursuing at 15:49 the same time do you um do you foresee uh in the near 15:54 future this going nationwide or do you think that you will continue to explore pilots for 16:01 a period of time yeah we so far we don't have very clear 16:08 agenda or timetable for the rollout in the whole country nationwide we are going to 16:17 next next stage based on the previous previous results of the 16:24 pilots we may extend the pilots to more cities and more banks 16:32 thank you i know a number of countries around the world are also considering central bank digital 16:38 currencies or or digital fiat currencies as you said 16:43 and they are looking with uh interest at the different approaches that you've 16:48 taken and that other countries have taken there are different design features in 16:55 the chinese system that i think are quite important i wonder if you could explain the basic design feature and 17:03 maybe provide advice about why you believed that that design structure was appropriate for china 17:11 well thank you for that that's a very good question uh firstly i think we adopted a very 17:18 important model which is we call it two-tier model 17:23 and maybe some people will call it hybrid model 17:28 we but we call it two-tier model maybe wechat is is quite different from 17:34 the uh other other countries hybrid model that is 17:43 ppc and commercial institutions uh well the previously will work as the 17:50 the first layer layer or first tier of that model and the commercial institutions will 17:58 work as the second tier of that model i think that that's the suitable 18:03 approach to the ecmi operation in china because that will 18:09 is different from the decentralized issuance of crypto assets definitely 18:15 so that is intermediate solution to provide uh providing for 18:24 direct claims on the central bank while real-time payments are handled 18:29 by the intermediaries the general public could exchange e-y 18:34 from the authorized operators as the second tier who could exchange 18:40 same amount e and y from the central bank and as consumers have a direct claim on 18:48 the central bank and this it not will not change the current 18:54 creditor data relationship in currency circulation and the ccny will not change 19:01 the existing currency circulation system and the two-tier constructor or create competition with 19:07 commercial banks in the savings market and in other words 19:13 a two-tier ease and why will not increase banks with reliance on the inter-bank 19:19 borrowing or affect their landing capacities so this intermediation 19:27 could be avoided and since it will not affect the existing monetary policy 19:33 transformation mechanism or intensify the pro psychologicality 19:41 in the in different stress scenarios issue and issuance easing why would not lead to 19:47 any negative impact on on the way of the real economy 19:53 operates to avoid the crowding out effects on bank deposits 19:59 arbitrage trading and the rise in pro-cyclicality the use of ease and y will not be 20:07 limited to small retail transactions by setting maximum maximum daily and yearly limits 20:15 and introducing policies that econy conversions exceeding a certain amount 20:22 can only be processed by appointment if necessary multi-tier 20:29 charges may be introduced especially in the time of stress 20:34 for the for small and some and low frequency transactions can be 20:41 processed free of charge but service fees can be charged on large or high 20:48 frequency transactions especially during the during background 20:54 to increase the exchange cost and system friction to avoid any background or 21:02 crowding out effect in terms of the bank savings market so that's the 21:09 that our key design of the two-tier model so that's the the 21:16 first you know design architecture of our our eastern y system uh 21:24 secondly uh our ecmo will be positioned as m0 mainly as 21:31 m0 so in that case uh as m0 that is the banknotes in 21:39 circulation and coincidence correlation mainly the constant circulation of 21:44 banknotes in circulation also the the required reserve in the central bank 21:51 so the since it's a position to m0 that means 21:58 the easing wire will be the use cases will limit will be limited to small retail transactions 22:06 domestically so we are going to focus on the domestic retail markets 22:13 instead of the wholesale market and also internationally 22:20 use cases so it's not for we are going to focus on the domestic 22:27 retail sector not internationally as you haven't mentioned that whether that will be a 22:34 key driver for the internationalization of rmb so firstly i want to focus on on the 22:41 domestic market if in the future there is demand for cross-border 22:47 payments because definitely digital fair currencies uh uh 22:52 is born to be used for cross-border payments but 22:59 if there's demand requirements for us to to be used for 23:05 cross-border payments firstly we have to talk to the local monetary authority or the 23:13 local central banks before we can extend to the cross-border use use cases 23:22 we have to respect the local uh supervision and we have to respect 23:28 the independence or sovereignty of their monetary policy so that's that's why that's the reason 23:35 we develop our own ease and why is also we cannot do that to other countries 23:42 without a prepared coordination 23:47 or well-coordinated mechanism especially for the exchange mechanism so that's the first 23:56 implication of the position as m0 secondly because it's positioned as 24:03 m0 we have to observe the same uh regulations as i am zero 24:10 so all the cash regulations the rules the the the laws 24:17 will apply to the ease and y we have to comply with all the existing 24:24 m0 rules and regulations that also include the ml 24:30 and uh cft rules of the m0 so we have to comply with that with that 24:37 with all those regulations and rules the kyc rules and thirdly 24:44 since it says this position as m0 so there was there will be no 24:51 interest be paid to the holders of e c and y and since 24:58 it's m0 so the exchange function will be 25:04 carried out by the commercial banks because in the back notes in the error 25:10 of paperback nodes and coins is the responsibility of the commercial banks who are 25:19 going to exchange the bank notes and coins to the general 25:24 public so those psps the payment service providers 25:30 the telecom operators if they are not the person not the institution who are going to 25:36 exchange the econy to the general public but the transactions but the 25:44 the circulation services could be done could be carried out by the commercial 25:51 banks and the pisps and telecom operators and other financial 25:59 institutions so those are the implications 26:05 of of the m0r besides that says that the central bank will not 26:12 charge any fees from the services providing to the general 26:18 public that will not charge anything for exchange in the circulation 26:24 of the ecmy among the individuals or the general public 26:32 that's very helpful in understanding the path you're on i wonder whether you could touch on an 26:37 aspect of the design related to privacy uh some people prefer 26:43 the anonymity of cash or maybe they want the private cryptocurrency like bitcoin 26:51 how do you think about the privacy aspects of offering a digital rmb 26:58 well definitely we have to respect the 27:05 demands of the general public in terms of anonymity in terms of payment services and 27:14 we adopted a policy that is we call it a controllable anonymity uh of the east and y 27:24 that that's to you know the ease and why transactions 27:31 may jeopardize uh the personal i mean the uh digital currency transactions may 27:38 jeopardize the personal data and privacy and uh so we have to 27:44 have a better design to protect the personal privacy and data and 27:51 at the same time you know we have to strike balance because a 27:58 complete anonymity will encourage criminal activities such as 28:04 tax division terrorist financing and money laundering so the only way to 28:11 strike a balance between the two is to keep the degree of 28:16 anonymity within the controllable range namely that is for the large 28:24 sum transactions we have to do the qic completely that means 28:32 the the transactions the large sum transaction has to be done with their real name real identity but 28:39 for small some daily use transactions 28:46 people could choose to remain anonymous so that's the key design 28:53 our principle the of course and also the 28:59 authorized operators we call it the second tier is author authorized operators they will perform 29:05 qic responsibilities and store their own data locally and 29:11 they will submit all the data to the central bank via and synchronous knowledge the central 29:17 known as those uh transactions transmission on a timely basis they will allow the central bank to keep 29:24 a track of nice social data to implement prudent regulation and combat 29:32 on money laundering and other criminal offences and illicit transactions but at the same 29:38 time you have to respect the demand of uh to remain uh anonymous for legitimate transactions 29:48 so that's the rules of our our views on the privacy issue thank you 29:56 you know a major theme of the conference we're having over the next few days is financial inclusion and the 30:03 ways that central banks might advance financial inclusion in their own economies you mentioned at 30:10 the outset that you think that the digital rmb may help with financial inclusion 30:15 others are worried that moving to digital currencies will leave more people out who are not 30:21 technologically connected or don't have access to the financial system in different ways how are you thinking 30:29 about working on the digital rmb in such a way that financial inclusion 30:34 is a central goal that the design features can help advance financial inclusion rather than leaving 30:40 people out of course as uh as i said it's the 30:46 one driver or all the top value cases for us to develop the 30:53 ease and why so due to our using wise property 31:00 characterization and the loosely coupled linkage 31:05 the general public could apply for digital wallets without opening a bank a 31:11 banking account therefore the issuance of ecmy 31:17 and offline payment function will enable the underbanked population in poorer and 31:25 remote areas with poorer coverage of telecom networks to enjoy basic 31:31 financial services improving the financial inclusion 31:37 and the econo could provide functions that you all it you always 31:44 cannot such as a offline payment function dual offline payment function and smart 31:51 contracts which serve currency functions such as 31:56 conditional payment and schedule payment so for those people you know we have a 32:02 lot of population in remote areas they don't have any traditional bank accounts 32:07 so traditionally they are on the banks because bank cannot provide services for 32:13 those people without a banking account but since we are loosely coupled this is decoupled from 32:21 the traditional banking account people can 32:26 open the digital wallet without a banking account that means those uh subject subsidies 32:34 or allowances for those per people could be uh sent to their digital wallet 32:40 without a bank account support so that people 32:46 could enjoy some basic financial services and also the physical support 32:53 from the government so definitely that will improve the the the financial inclusion 33:00 uh beyond that uh because easing y is a value based quality and full 33:07 accomplished hybrid payment instrument that could be also is loosely coupled 33:14 from the banking accounts so it doesn't rely on the banking account for phone 33:21 transfer therefore for the perspective of settlement finality 33:27 the settlement is completed it will be completed at the very moment of the payment is completed so 33:34 the financial finality confirmation by the rtgs is no more required 33:39 for those small merchants especially the small and medium enterprises 33:46 the working capital turnover efficiency could be improved so that case that also will 33:53 provide some support to the financial inclusion that's a very comprehensive approach to 34:00 financial inclusion and i think there are many important lessons there that others around the world want to look 34:06 to and examine explore and see whether it works in their own systems obviously each each system is 34:12 unique and people will have to develop their own path but i do think there are many 34:17 important lessons there we are almost done with our time i wonder whether you have any final 34:23 words you want to leave us with to convey to the participants in the conference 34:30 okay i know people are uh especially those uh media 34:37 is exaggerated on the uh internationalization effect of uh ecmy uh 34:45 you know to the to the r b but as i said uh we need 34:53 a international coordination we need we we call for international 34:59 cooperation in terms of the development of digital currency or digital fair 35:06 currency [Music] and so in that case if we can 35:13 cooperate together we can improve the interoperability 35:18 among the digital fare currency or cbdc's among different countries and we can 35:25 improve the efficiency and we can improve the transparency and 35:31 we can reduce the cost of the uh the cross-border payments so can we 35:38 can make the whole world better and we can stimulate or improve the international 35:44 tree to make people lives better so 35:50 we are looking forward to have a better coordination a better corporation among different 35:59 central banks and international organizations thank you thank you very much we really 36:05 appreciate your participation in the conference your remarks are quite insightful and i 36:11 think will help our listeners really around the world understand the work that it china is uh 36:16 we're proceeding on on the digital rmb and i know that we'll um 36:21 have many such issues to discuss in the coming years so thank you so much for participating in the conference today 36:28 thank you