“U.S. policy makers are unprepared for the consequences of (the Chinese digital currency project).”-CNBC News reported on May 23. The title picture is from Visual China, and this article is from public micro-channel number: GTJAS securities research (ID: gtjaresearch) , author: Liuhua Feng, Tom Yan, Wu Huayu
Compared with domestic concerns about the two sessions, the government ’s work reports and stimulus policies, the Western world ’s focus seems to be more on the progress of central bank digital currencies.
In their view, “The digital RMB implemented by the People’s Bank of China, once combined with China’s advanced electronic payment system, may provide a more effective platform for China’s international influence than the aircraft carrier fleet.”
In fact, since the outbreak of the new crown epidemic this year, the Fed ’s frequent injection of water into the US dollar to pass on the crisis has stimulated countries to take action. In addition to central banks planning to ship gold back to the Fed in advance, accelerating the research and development of digital currencies is also an important step in seeking to “de-dollarize”.
According to thestreet of the US financial website, although no country has officially issued a central bank digital currency, China, Sweden, Thailand, Cambodia, South Korea, Ukraine and other countries have pilot programs. Canada and Venezuela are in the development period. Instead, developed countries such as the United States, Japan, and many European countries are still in the research stage.
Can the central bank digital currency step on the shoulders of its predecessors and become the terminator of dollar hegemony? How is it different from other challengers-Euro, Gold, Bitcoin? The Guotai Junan Securities Nonferrous Team recently interpreted the latest progress of this “currency war” from the perspective of many challengers of US dollar hegemony with an in-depth report “Digital Currency, the Horn of the Third Golden Bull”.
The world is suffering from dollars for a long time
As the world ’s most dominant and powerful fiat currency, the US dollarIt accounts for more than 40% of the world’s major settlement currencies. Most of the international commodities transactions such as crude oil, gold, basic metals and agricultural products are settled in US dollars.
The United States uses the special status of the US dollar to determine its value independently and achieve its economic hegemony status.
According to the IMF statistics of the World Monetary Fund, since 1999, the proportion of US dollars in global asset reserves has dropped from a peak of about 73% to about 62%. In addition to showing that the phenomenon of “de-dollarization” is indeed happening, it also shows that the dollar hegemony is indeed difficult to shake in the short term.
▼ The proportion of global dollar asset reserves from 1999 to the present
The overall trend is declining, but it still dominates
Data source: IMF, Guotai Junan Securities Research
Over the past years, there are only a handful of challengers who can truly pose a threat to the US dollar. Among them, super-sovereign currencies (such as the euro) International payment system (such as RMB cross-border payment system CIPS) has been or is being placed on high hopes.
super-sovereign currency (such as the euro)
In terms of super-sovereign currencies, the most representative one is the euro. As of the first quarter of 2019, global euro asset reserves accounted for about 20.2%, far below the United States61.8% of the yuan.
The reason is that the euro is restricted by regional restrictions and it is difficult to break away from the European scope.
▼ 1999 to present
Proportion of Global Euro Asset Reserves
Present rising and then descending
Data source: Wind, Guotai Junan Securities Research
Cross-border payment system (such as RMB cross-border payment system CIPS)
The most representative cross-border payment system is the Chinese cross-border payment system CIPS (cross-border Interbank Payment System) In order to satisfy the “Belt and Road” domestic and foreign financial links, it was launched by the People’s Bank of China in 2015.
According to statistics, as of now, CIPS has 31 direct participants and 855 indirect participants, the actual business covers 155 countries > 2395 legal person financial institutions. In 2018, the number and payment amount of CIPS payment business reached 1.44 million and 26 trillion yuan, respectively.
▼ 2015-2018
The number of CIPS payment increases rapidly
Data source: Wind, Guotai Junan Securities Research
▼ 2015-2018
CIPS payment increases rapidly
Data source: Wind, Guotai Junan Securities Research
In fact, whether it is a cross-border payment system or a super-sovereign currency, the regional limitations are obvious, and it is hard to say that it poses a substantial threat to the dollar system.
But if there is a currency that has the characteristics of cross-border payment or super-sovereign currency and can solve problems such as regional restrictions, can it pose a real challenge to dollar hegemony?
Digital currencies may be able to carry the heavy burden.
New challenger-digital currency
5 years agoOn March 22, 19-year-old programmer LaszloHanyecz bought two pizzas worth $ 41 for 10,000 bitcoins.
Some people say that the two pizzas come from Stick John, and some say it is Domino ’s, but this is not important. The important thing is that Bitcoin is priced for the first time, indicating that the digital currency has the payment function of fiat currency. And this day has also become a commemorative day for Bitcoin, known as the Bitcoin Pizza Festival by believers.
Since then, digital currencies have been in full swing. At present, the number of digital currencies in circulation on the market has exceeded 2,400, and there are between 40 and 60 million people in the world.
Bitcoin
Bitcoin, the originator of the digital currency, was born in the 2008 subprime mortgage crisis. As of the end of April 2020, the total market value was about 138.1 billion US dollars, and the single currency was about 7530 US dollars / piece.
▼ As of the end of April 2020
Overview of the market value and price of the top 10 digital currencies
Image source: Coinmarketcap
Bitcoin is so popular in the market, mainly because it has the characteristics of decentralization, global circulation, and low transaction costs. The entire network is composed of users, and there is no endorsement by any authority.
▼ Bitcoin has the characteristics of decentralization and global circulation
Source: “Development Trend of Bitcoin”, Guotai Junan Securities Research
However, Bitcoin is halved every four years without additional issuance, and the total amount is maintained at 21 million, making its liquidity limited and price fluctuations violent. This is contrary to the condition of becoming a currency equivalent, so it is difficult for Bitcoin to become a real meaning. Currency.
Libra (Libra)
Will that digital currency be truly monetized as long as it inherits the advantages of Bitcoin and solves credit endorsement and liquidity problems at the same time?
In June 2019, Facebook announced the birth of Libra with a Libra1.0 white paper.
Since its release, Libra has been controversial, but it ca n’t stop its ambitions—serving 1.7 billion people worldwide who lack banks or financial services, and helping these countries or regions establish stable currencies or digital fiat currencies < span class = "text-remarks" label = "Remarks"> (CBDC) .
What is different from Bitcoin is:
1. Libra has a good credit endorsement, an independent Libra management organization, and its members are mostly industry leaders such as Facbook, eBay, PayPal, etc.;
2. There is no issuance upper limit to guarantee liquidity requirements;
3. Specific assets are backed by reserves, linked to a basket of currencies and short-term government bonds to a certain extentGuarantee the stability of the currency value.
In addition, the scalability of Libra (convenience for payment) and security (corresponding to the security of payment) guarantees its payment function. The above advantages may help Libra to be closer to or even become a” currency “in the true sense.
▼ Three Libra Elements
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Source: Libra White Paper, Guotai Junan Securities Research
If the birth of Bitcoin is a conceptual impact on the dollar system caused by “currency decentralization and denationalization”, the emergence of Libra undoubtedly makes it possible for digital currencies to challenge the dollar in terms of operability.
▼ Digital Currency
“two-dimensional” blow against the dollar
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Source: Guotai Junan Securities Research
For the purpose of establishment, unlike the cross-border payment system or the euro, Libra aims to become a global currency without borders. Its scope is far from being limited to a specific region and country, and it can easily cross geographical boundaries and judicial boundaries. , Or even currency borders.
In terms of linked assets, Libra chose a basket of currencies as the anchoring benchmark.
Therefore, Libra can theoretically be regarded as a super-sovereign currency that truly achieves “denationalization and de-regionalization.” It is not impossible to have a significant impact on the existing dollar system, but it is difficult to achieve it overnight.
▼ Libra has both cross-border payment and super-sovereign currency features, while breaking through geographical limitations and is expected to further challenge the US dollar
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Source: Guotai Junan Securities Research
If Libra only anchors the US dollar (In fact, in view of the US regulatory requirements and the stability of the currency value, the US dollar or US dollar Treasury bond is still the best anchor target) Become a “dollar digital currency”. At that time, the dollar will be linked to gold and oil before being anchored to the digital currency. Its hegemonic position may be strengthened rather than weakened.
▼ does not exclude the possibility of future dollar-pegged Libra
The U.S. dollar hegemony may be strengthened instead of weakened
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Source: Guotai Junan Securities Research
DCEP (Digital Currency Electronic Payment) of the People ’s Bank of China
Coincidentally, at the same time that the Libra 2.0 white paper was released, the People’s Bank of China announced a small-scale public test of DCEP.
As early as 2014, the People’s Bank of China began designing digital currencies and recently conducted pilot tests in cities such as Suzhou.
According to the results of the BIS ’s 2020 survey, 10% of central banks worldwide have considered issuing fiat digital currencies in the short term, and hesitated to wait and see and oppose the prohibition.
Then as the world ’s first digital fiat currency (CBDC) , DCEP-this central bank digital currency, compared to Bitcoin, How is Libra different?
DCEP has the following characteristics: its underlying asset is RMB (Central Bank Liabilities) , which is the endorsement of the People ’s Bank of China, so essentially it is Sovereign currency similar to the existing paper currency, but compared with paper currency, its manufacturing and operating costs are lower, and it is easy to carry, and the anonymous controllability will lay a good foundation for its anti-money laundering, anti-terrorist financing and other functional designs.
In addition, the core of the DCEP design is the double-layer operation: that is, the People ’s Bank first exchanges DCEP to financial institutions such as banks, and then converts it to the public. The double-layer operation can use existing resources to mobilize the enthusiasm of commercial banks. CompareTo improve public acceptance of DCEP. (See Guotai Junan ’s previous report “ Central bank digital currency issuance will give What is the impact of our daily consumption? 》)
We believe that the trial of DCEP in Suzhou and Shenzhen will open the curtain of its application. The landing speed may exceed expectations, and it is expected to usher in a wider range of applications.
▼ Comparison of DCEP with Bitcoin and Libra
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Source: Sina Finance, Guotai Junan Securities Research
But like Libra, although the Central Bank of China ’s DCEP may also develop into a global payment and clearing infrastructure to weaken dollar hegemony, it cannot significantly change the fundamentals of international currency competition in a short period of time.
The underlying asset of DCEP is RMB. The international payment ratio of RMB and the global reserve currency account for less than 2%, making it difficult to achieve a dominant position in international payments.
In the short term, DCEP can only serve the territory of China, and achieve full coverage through legal and administrative means in the country. However, outside the country, the short-term impact is mainly on Chinese-speaking regions and some countries in the Belt and RoadHouseholds.
Although the People ’s Bank of China is expanding the application scenarios of DCEP, such as cross-border, cross-institutional payment and clearing and settlement, it may also be tied to Alipay and WeChat payment, but from the perspective of user base, DCEP does not occupy a significant advantage. It will lag behind Libra in a considerable period of time. Facebook has 2.8 billion global users, plus users of members of the Liberty Association, and its potential user base is huge.
In summary, it is extremely difficult for digital currencies to “monetize” in the short term, but it is extremely difficult to challenge the hegemony of the US dollar. However, in the medium and long term, its rise, improvement and development are expected to challenge the hegemony of the US dollar and accelerate the de-dollarization process.
The third round of gold bulls may start in digital currencies
Since this year, everything from gold bars to paper gold, gold wealth management, gold futures, and gold funds has achieved good returns, and this bullish gold market is inseparable from the “de-dollarization” wave.
Looking at the multiple bull markets in gold throughout history, the starting point of the first round of bull markets was the decoupling of the US dollar from gold (Breton Forest System Disintegration) , The end point corresponds to the stable period of the US dollar monetary system in the 1980s; the second round of the bull market starting point corresponds to the birth of the euro, and the end point is the US economic recovery superimposed on the European debt crisis.
It can be found that the bull market for gold always corresponds to changes in the monetary system, especially the US dollar. De-dollarization largely affects the performance of the gold price.
If the first round of de-dollarization was the disintegration of the Brettonson system and the second round was the birth of the euro, what would be the third round as a carrier?
From a longer time perspective, similar to the beginning and end of the first and second rounds of gold bull market, we speculate that the third round of gold bulls-or will start from the first represented by digital currency Three rounds of de-dollarization; or it will end when digital currencies are truly mature and when they have a substantial impact on gold.
▼ The third round of gold bulls may start with the rise of digital currencies and end with a substantial impact on gold
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Source: Guotai Junan Securities Research
Considering the current market acceptance, trading volume, traders and other factors, we believe that in the short term, digital currencies cannot currently have a significant impact on gold, and considering that both can hedge the US dollar credit system, more in the early period May be embodied as a common challenger of dollar hegemony rather than a competitor.
First of all, as far as market acceptance is concerned, digital currencies are frequently attacked and questioned, and many countries are considering regulatory issues.
Gold has been regarded as a general equivalent of rare objects since ancient times and has been widely recognized by the market.
The changes in the world monetary system from the 18th century to the present are closely related to gold: gold and silver standard-gold standard-gold exchange standard-Brettonson system Linked to the US dollar) -Gold’s non-monetized monetary system evolution.
▼ The evolution of the monetary system related to gold
From the gold and silver standard to the non-monetization of gold
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Source: “Some Research on Gold Pricing”, Guotai Junan Securities Research
Today, gold still occupies an important position in foreign exchange reserves of countries around the world. For example, as of 2019Q4, US gold accounted for about 75% of foreign exchange reserves, and Germany about 70%.
▼ As of 2019Q4
Major countries and regions in the world
Overview of the proportion of gold foreign exchange reserves (converted in US dollars)
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Data source: World Gold Council, Guotai Junan Securities Research
Second, from the perspective of transaction volume, the currency with the largest transaction volume on the market is currently Bitcoin. According to Coinmarket statistics, the average daily transaction volume in 2018 is about 8 billion U.S. dollars per day. The average daily trading volume of world gold in 2018 is about 114 billion U.S. dollars per day. (including OTC market, futures market and ETF market) The amount is much larger than Bitcoin.
▼ In 2018, the average daily gold trading volume in the world was about 114 billion US dollars
(including OTC market, futures market and ETF market)
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Photo source: World Gold Council, Note: Unit is 1 billion US dollars
Finally, from the perspective of investors, there are many gold trading participants, including upstream raw material producers, midstream traders, and downstream processing enterprises. Exchange transactions and gold ETFs are mostly professional investors, and Bitcoin is extremely large. Some of them are “coin friends” who have some research on digital currencies. It is difficult for investors from both sides to choose whether to hold Bitcoin or gold.
But in the long run, with the maturity, scale, and standardization of digital currencies, the obvious impact on gold is expected to be truly reflected, and the two will likely face a positive confrontation in reserve assets and payment transactions.
Based on whether digital currencies can pose a substantial threat to the US dollar, there may be three scenarios in the future.
▼ Under the assumptions of different scenarios, the impact of digital currencies on gold
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Source: Guotai Junan Securities Research
1. If a digital currency such as Libra poses a substantial threat to the US dollar and the US dollar hegemony is strongly challenged, then gold has a good performance basis.
2. If the future US dollar-Libra system really builds (as mentioned above is not impossible) , the US dollar hegemony will increase rather than weaken, then Gold may be under pressure.
3. If the future digital goodsCoins such as Libra have become the dominant player in the world’s monetary system instead of the US dollar. At that time, gold may no longer anchor the US dollar but a digital currency. The prosperity of the digital currency may not be conducive to the weakening of gold prices under the strong dollar.
This article is from WeChat public account: Guotai Junan Securities Research (ID: gtjaresearch) author: Liu Huafeng, Tang Haiyan, Wu Arima. The above content is excerpted from the research report “Digital Currency, the Horn of the Third Golden Bull” issued by Guotai Junan Securities and public information. For specific analysis content (including risk warnings, etc.), please see the full version of the report.