On the afternoon of November 27th, Tao Xiang International Finance Lecture (No. 25) was successfully held at theSchool of Finance, Renmin University China (RUC). Dr. Wu Zhifeng, Senior Research Fellow of International Monetary Institute (IMI), RUC delivereda speech onthe theme of “The Past, Present and Future of Digital Currency froma Global Perspective.” The lecture was chaired by Wang Fang, Associate Dean, School of Finance, RUC, and Deputy Director of IMI, and followed by comments from Qiu Zhigang and Lu Dong, Associate Professors of the School of Finance, RUC. Dozens of professional master’s students from the School of Finance attended the lecture.

Dr. Wu Zhifeng first statedthe concept, brief history and vision of digital currency. Digital currency refers to currency in digital form that transforms ledger structure with digital technology and is supported by encryption tech and smart contracts. Itwas invented in 2009, along with the rise of blockchain technology. Bitcoin is the first real digital currency. The goal of digital currency is point-to-point value exchange. Traditionally, third-party authorities ensure that digits are unique. This approach, however, leads to enormous third-party organisations and high transaction costs. Digital currency uses blockchain, distributed ledger, encryption algorithms and other technologies so that it is unique and unchangeable. Besides, smart contracts are computerized in digital currency. Therefore, it is programmable, and enables automatic value exchageand thus value internet.

Dr. Wu Zhifeng then introduced the types of digital currency based on the brief history of digital currency and the MoneyFlower Model. Main types of digital currency are native digital currencies and its tokens, stablecoins, and central bank digital currency. Among them, native digital currencies include Bitcoin, Ethereum, ERC2, ERC721; stable coins work equivalently under currency board system. The most common stablecoins are backed by legal tender based on an promised exchange ratio of 1:1. Tether (USDT) issued by Bitfinex/iFine and USD Coin (USDC) issued by Coinbase are themost well-known ones.

Dr. Wu Zhifeng then analyzed Libra’s impact on the central banks across the world and regulators’ doubt about Libra. He illustratedthe global progress of Central Bank Digital Currencies (CBDC). Taking e-CNY as an example, he elaborated the issurance, injectionand circulation of CBDC under a two-tier operating system and athree-center structure, and CBDC’s impact on commercial banks and monetary policies. E-CNY is a means for commercial banks tocompete with third-party payment. As Money Supply M0, e-CNY still requires 100% reserve ratio in the central bank. With lower money multiplier, the derivative ability of deposit currency would be undermined. From along-term perspective, commercial banks would transform into weath management institutions with weakened status as payment intermediaries.

Lastly, Dr. Wu Zhifeng shared his insights into global competition in the field of digital currency and the outlook for digital currency. Global competiton will unfold as competition between private digital currency and legal currency, and rivalry among digital currencies of central banks. He also mentioned that digital US dollar would follow a prominently different path from digital RMB and probably would be under the framework of stable coins with authorized institutions issued and backed by single US dollar assets. Dr. Wu pointed out that non-sovereign private digital currency would coexist with sovereign CBDC in the future. Healsohoped that e-CNY wouldbeoneofthe major competitive digital currencies in the future by adopting better market-oriented technologies and systems.

Associate Professor Qiu Zhigang commented on the lecture and further emphasized three types of currency as takeaway, namely bitcoins or gold in the digital world, CBDC or legal tender in the digial world, and Libra in between. He thought that these financial innovations were not competitors of regular payment methods due totheir low efficiency, but they could play a role in areas that traditional financing couldn’t reach, such as cross-border payment. Associate Professor Lu Dong recognized digital currency’s role in crisis response, analysis and prediction of the economy, such as targeted relief. Inaddition, he pointed out the disadvantages of private digital currency compared with CBDC, such as unstable currency value. After the lecture, Associate Dean Wang Fang expressed her gratitude to Dr. Wu Zhifeng and thanked the guests for their comments.