this article is excerpted from "the global history of cross-border payments: from maldives sea shells to digital currency", published by china translation publishing house in august 2024.

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he liping and zhao yao: digital currency is expected to become a new trend and future development direction in the digital economy era

historically, the evolution of currency has gone through a long period and has many important turning points, such as the separation of general equivalents from many valuable objects, the general acceptance of high-value items such as gold and silver as general equivalents, the government-led coinage and the implementation of a monopoly on coinage, the emergence of paper money convertible with precious metals, and the establishment of an inconvertible paper money system. after the mid-19th century, driven by the industrial revolution and industrialization, the central bank system was born in many countries, and its monetary management functions were gradually enriched and expanded. by the beginning of the 21st century, digital technology and encryption algorithms were able to challenge traditional currency issuance and payment transaction methods. the competition between the legal currency system represented by the central bank's digital currency and the private currency system represented by the (global) stable currency is the focus and decisive force of future cross-border payments, especially the competition of retail payment models. in order to cope with the problem of cross-border payments, the main line of innovation in global cross-border (retail) payment models is technological innovation, which also occurs and develops in the context of financial technology innovation.

it is undeniable that if the "global stablecoin" is successful in cross-border (retail) payment applications, it will compete with legal tender, and the central bank's digital currency will also be adversely affected. specifically for developing countries, since most of their currencies are in a "weak position" and some have not yet achieved free convertibility, they are to some extent weaker than the "global stablecoin" and the "strong currencies" in reserve assets. therefore, before becoming a true international currency, the currencies of developing countries, including the central bank's digital currency, will still be eroded by "strong currencies".

according to the bank for international settlements, central bank digital currency is generally defined as central bank money in digital form denominated in national accounting units, which is a direct liability of the central bank and can be used for retail payments and/or wholesale payments. since it is a digital form of legal tender issued and managed by the central bank, and is a digital manifestation of legal tender, it is also called legal digital currency. unlike traditional currency, central bank digital currency is an integrated innovation based on cutting-edge technologies such as encryption algorithms, distributed ledgers, and privacy enhancement technologies. it realizes the circulation, transaction and settlement of currency in digital form; it can realize real-time settlement of funds through atomic transactions, thereby improving the efficiency and security of the payment system. the introduction of central bank digital currency will reshape the monetary system and financial system in the future, and is expected to become a new trend and future development direction in the digital economy era.

the development of central bank digital currencies is accelerating globally. china has taken the lead in making important progress in the research and development and pilot of the digital rmb. other countries and regions are also actively exploring and promoting the research and development and application of digital currencies.

at present, the world's major central banks and international payment-related organizations have basically reached a consensus on the importance of cross-border payments. the group of twenty (g20) has identified the promotion of cross-border payments as a priority and has developed a roadmap to strengthen global cross-border payments. during saudi arabia's rotating presidency of the g20 in 2020, the g20 agreed to "strengthen cross-border payments" as a priority during that period. on october 13, 2020, the financial stability board released the "third phase development roadmap for strengthening cross-border payments", which lists actions and indicative timetables in five key areas (table 5-2): first, it is committed to achieving the vision of public and private cooperation in cross-border payments; second, it coordinates regulatory and supervisory frameworks; third, it improves the existing payment infrastructure to meet the needs of the cross-border payment market; fourth, it improves data quality by strengthening data and market practices; and fifth, it explores the potential role of new payment infrastructure. the bank for international settlements innovation hub (bisih) has led a series of cross-border payment innovation projects. among them, the innovative project "nexus" to strengthen the cross-border interconnection of the fast payment system (fps) of relevant countries belongs to the third cross-border payment roadmap, that is, to improve the existing payment infrastructure to meet the market's cross-border payment needs, especially retail cross-border payment needs. in addition, many countries are exploring the potential of digital currencies, including central bank digital currencies, for new payment infrastructure, including sweden, japan, canada, singapore, israel and other countries. major economies and emerging economies such as the united states, the european union, the united kingdom, and india are also accelerating the research progress of central bank digital currencies. the research and pilot work of central bank digital currencies is being promoted globally.

digital currency helps solve cross-border payment problems.

first, digital currencies help central banks manage the transition from physical cash to publicly accessible digital alternatives. in the case of central bank digital currencies, by providing this service, central bank payments can expand inclusion, stimulate market competition, and potentially reduce costs. second, in an environment where multiple private sector digital payment alternatives are available, central bank digital currencies also provide a mechanism to support the robustness of sovereign payments and can also help address certain risks posed by private crypto assets - the expansion of these assets may replace the use of local currencies and thus weaken the ability of central banks to conduct monetary operations. finally, as central bank digital currencies develop, it becomes increasingly important for jurisdictions to ensure a robust, secure, and regulatory compliant infrastructure for central bank digital currencies. central bank digital currencies should also remain compatible with and complement traditional cross-border payment options, driving international payment arrangements forward in the digital age.

at present, under the leadership of the bank for international settlements, the cross-border payment models of digital currencies in the global field can be basically divided into three types. the first is the compatibility model, that is, the monetary authorities of various countries independently develop the central bank digital currency system, independently determine the rules, governance, participant access and infrastructure construction, but different economies promote the compatibility of the system by establishing specific arrangements, such as establishing a common information format, encryption technology, data requirements, user interface and legal and regulatory norms; the second is the interconnection model, different digital currencies are issued based on different distributed ledgers, and the interconnection and interoperability of different payment systems is achieved through sharing technical interfaces or formulating a unified clearing mechanism, such as the jasper-ubin project and the stella project; the third is the single platform model, different central banks issue their own digital currencies based on their own needs and different standards, and integrate multilateral central bank digital currencies into one system by establishing a single rule and governance arrangement, a mutual recognition scheme, a single infrastructure and a distributed ledger, etc., to better improve the complexity, dispersion and concentration of the above two models, such as the dunbar project, the jura project, the mas project and the aber project. relatively speaking, the first and second models are more open in technical design, but they place high demands on the coordination of technology and different economies. the advantage of the third model is that it does not need to rely on immature cross-chain technology, and is more open and inclusive in technology. at the same time, central banks of all countries can issue their own digital currencies to protect monetary sovereignty. among them, the multilateral central bank digital currency bridge (mbridge) project, as a single platform model, has taken the lead in stepping out of the laboratory and entering the real testing stage, and is ready to enter the commercial stage. the innovative project is jointly participated by the hong kong monetary authority, the bank for international settlements (hong kong) innovation center, the bank of thailand, the digital currency research institute of the people's bank of china, and the central bank of the united arab emirates.

in general, the efforts to improve cross-border payments with digital currencies around the world are mainly concentrated in three areas: first, explore the technical potential of blockchain and distributed ledger technology in innovating the existing cross-border payment infrastructure, especially the message network, to form a new cross-border payment model, such as the mbridge project, the mariana project, the dunbar project, and the cedar project in the united states. second, explore the application of wholesale cbdc in cross-border payment-related scenarios. for example, the helvetia project has completed the testing of wholesale cbdc in cross-border financial scenarios such as inter-bank cross-border settlement and cross-border securities settlement; focus on studying the technical potential and application prospects of wholesale cbdc in compatibility with domestic and cross-border payment systems and even in achieving a unified financial infrastructure. third, evaluate the applicability and compliance of new technologies that have been applied in the practice of decentralized financial markets in the cross-border financial field.

of course, as the internationalization of the rmb achieves significant results, the weight of the rmb in the special drawing rights (sdr) will more fully reflect the share and status of the chinese economy in the global economy. the idea of ​​a super-sovereign digital currency based on dynamically adjusting a basket of central bank digital currencies may become increasingly feasible, which will help solve the inherent instability of a single sovereign currency as an international currency and alleviate the "new triffin dilemma."

under the guidance of xi jinping thought on socialism with chinese characteristics for a new era, the overall indicators of rmb internationalization have improved, the rmb payment currency function has steadily improved, the investment and financing currency function has been further deepened, the reserve currency function has been continuously improved, and the pricing currency function has been gradually strengthened. in 2021, the total amount of cross-border rmb receipts and payments on behalf of customers by banks was 36.6 trillion yuan, a year-on-year increase of 29.0%, and the amount of receipts and payments reached a historical high. in november 2020, general secretary xi jinping pointed out that china should actively participate in the formulation of international rules such as digital currency to create new competitive advantages. on december 10, 2022, general secretary xi jinping’s keynote speech at the china-gulf cooperation council summit required the development of local currency swap cooperation, the deepening of digital currency cooperation, and the promotion of the multilateral central bank digital currency bridge project. there is reason to believe that by building a digital currency-based monetary partner and a new international cooperation system, continuously enhancing my country’s institutional voice in global monetary governance and cultivating my country’s new competitive advantages in the digital economy era is an important monetary governance strategy for my country to actively adapt to the reform of global monetary governance.

now, 114 countries are exploring central bank digital currencies, accounting for more than 95% of global gdp. among them, 11 countries have fully launched central bank digital currency projects, and central banks in other major jurisdictions are also conducting research and trials. the public and private sectors of almost all major economies are exploring how to provide ideas and solutions for the digital transformation of the monetary and financial system through technology. on the one hand, the research and exploration of wholesale and retail central bank digital currencies will realize the digitalization capabilities of central bank currencies. on the other hand, the digitalization of commercial bank currencies, such as tokenized deposits, is also receiving more attention. it is believed that in the near future, the digital currency spectrum based on central bank digital currencies will be more diverse and can provide more developing countries with a relatively equal and freely participatory new cross-border payment system, thereby enhancing the fairness and inclusiveness of the international monetary system and global financial governance.■