Dr. Beijing Normal University: Penetrating stable currency from the perspective of monetary economics

Regarding the stable currency, many people in the industry have already expressed their views from different angles, and most of them are positive. However, in the last issue of the "Carbon" salon, Dr. Zhao Wei, who we invited, was an exception. He has in-depth research on monetary science, and is also willing to stand outside the industry, from the perspective of supervision and government, and criticize it. The partial belief is dark, and the listening is clear.

The following is the full text of Dr. Zhao Wei’s speech on the value of carbon chain:

01

Why is JPMorgan issuing coins?

Understand the JPMorgan currency before understanding what is liquidation. Foreign countries are divided into three types: payment, liquidation, and settlement, but they are collectively referred to as liquidation or clear settlement in China. Before the liquidation and settlement, there is a process called transaction, which refers to an initiation, authorization, and transmission phase of the payment instruction of the information. If you do not involve the transfer of money funds across the account department, then you do not need to liquidate, we can directly transfer the money from one account to another. But if this kind of currency transfer involves a cross-account organization, then it needs to be liquidated. Clearing is divided into real-time and delayed modes.

I once talked to an official of the New Zealand Fed, who told me that the reason for JPMorgan's currency is that the US payment system is lagging behind and the payment efficiency is low.

In China, South Korea, Hong Kong and even some South American regions, liquidation is carried out by the central bank. The supervisory management system used by the central bank is called the Real Time Full Settlement System (RTGS). The United States also has this system, the United States uses FEDWIRE, but this system has been used for a very long time. It was established in the 1970s, and it has been perfected since the 1980s. FEDWIRE has not been extensively renewed or updated, so FEDWIRE can only be said to be a near real-time or near real-time system compared to RTGS in other regions.

Give an example of the difference between FEDWIRE and real-time systems. I pay a check in the United States, usually it takes five working days to withdraw cash. If there is a holiday in the middle, it will have to be postponed. So in the US there is a Payday loan, translated into a Chinese payday loan. This does not mean that the American people lack money, but because the US payment system, especially the retail payment system, can't do it in real time like China. American companies, especially the US government, assume that the 28th of each month is a payday. Then the No. 28 company sent the salary, and the employee may have to spend five working days or even a week to get the salary. Because Americans don't save money, during this week's time, employees don't have the money, so they can only borrow money. One reason why China's cash loans can't succeed is that the funds are actually paid. In China, the company pays you a salary in the morning, and the account is absolutely in the afternoon, unless the company runs a special situation such as breaking the factory.

For this reason, in November last year, the Federal Reserve sought advice from the whole society (mainly those related to these payment markets): How should the United States improve my payment system and improve my payment efficiency, especially the retail payment system? Super China.

The United States is a very democratic society, and the Fed claims to want to transform his system, but this requires authorization and funding from the US Congress. Fed officials expect it will take about seven to eight years before Congress can pass the bill and allocate funds. It will take 15 years to complete the construction and 12 years in the shortest time. Some banks can't wait.

I got some ideas when I talked with some US Treasury and Fed officials and scholars in liquidation. China's financial technology fragmentation technology and business model are derived from the United States, but the development of the United States has been suppressed for a long time, and the Chinese government is encouraging the development of the industry, so China's development in this area far exceeds the United States. Although the United States wants to raise the level of overall financial technology, it will still take a long time in the policy game.

In this context, JPMorgan came out to make a token. Not just JPMorgan, other banks also need such tokens. In the case that the Fed does not support it, the people first use tokens as an alternative to experiment. Earlier in 2017, Japan’s Mitsubishi UFJ Bank issued a similar token J-Coin to several major banks. However, this thing is not based on blockchain technology, but the purpose is consistent with JPMorgan.

The payment systems in Japan and the United States are too inefficient, and JPMorgan's issuance of tokens is a last resort. The Fed officials expressed their disapproval. The token itself has many problems, because there is no Fed endorsement and commitment behind it. If there is liquidity risk, who will bear this responsibility? Without the endorsement of the Federal Reserve and the US Treasury, the greater the payment system is, the greater the risk.

Of course, the Fed is not worried about JPMorgan's system becoming bigger. Because of the risks behind the big, JPMorgan can't afford it. This system may eventually become a commons in economics, and the tragedy of the commons stems from the failure of legal obligations and responsibilities. So on this basis, JPMorgan will maintain the entire token system in a controlled volume.

02

Digital currency is a currency substitute for cross-border use

We did a study and selected the data and transaction data of Bitcoin in 23 exchanges around the world from March 24, 2015 to March 23, 2017, comparing 19 kinds of legal coins, and finally concluded. Yes: The purpose of trading Bitcoin is for cross-border.

With the US dollar as the target, in addition to the Indian rupee, the Mexican peso and the Australian dollar, the other 16 legal currencies are in compliance with the one-price law on 23 platforms. Explaining the one-price law in digital currency is the platform renminbi quote of Bitcoin, which is converted into US dollars according to the RMB exchange rate, which is consistent with the platform dollar quoted price of Bitcoin. This is equivalent to buying a burger in China. The price of the renminbi for buying hamburgers is the same as the price at which you buy hamburgers in the United States. Explain that in these 23 platforms, the quoted price of Bitcoin fully reflects the fluctuation of the foreign exchange market. Further explaining that the main purpose of people trading Bitcoin is to cross-border and convert bitcoin from local currency to US dollars.

Buying bitcoin and trading in the country will not reflect the domestic bitcoin quotes. He reflects the changes in the exchange rate of the national currency against the US dollar. The main purpose of this phenomenon is to cross-border money laundering. A series of mainstream cryptocurrencies, such as Bitcoin, Ethereum, and EOS, are used for cross-border purposes because their daily quotes fully reflect exchange rate information.

In addition to speculating in currency, people involved in cryptocurrency transactions are designed to transfer assets, which creates a problem of currency substitution. In the 1970s, the Bretton Woods system collapsed soon. Some countries in Latin America and Southeast Asia were relatively backward. Therefore, government agencies have produced corruption and issued a large amount of legal currency, so that the final legal currency is not as good as paper. At this time, residents of these countries are more willing to use the dollar to conduct daily payment transactions. These countries that used the US dollar as a currency substitution became dollarized, and the peak period of dollarization occurred after the collapse of the Soviet Union.

Encrypted assets emerged first in the United States, and it was priced in dollars. It did not say that it was priced in Swiss francs in euros, all of which were priced in dollars. So Americans think that this kind of thing is a kind of dollarization, or a digital embodiment of dollarization. The US government does not need to manage it, at least the US Treasury is this view. The US government has never said that he wants to take the initiative to push the dollar, nor does he say that I want to oppose it. This is the result of the market. Well, it is the long-term attitude of the United States to such a dollarization. Therefore, the US Treasury Department believes that this is a normal dollarization of crypto assets, which are priced in dollars.

In July last year, the Turkish lira collapsed because of problems in the Turkish government’s finances, when Turkey’s bitcoin offer suddenly rose. Because some people already know or expect the lira to be in trouble, they need to change the lira into dollars. At this time, the demand for bitcoin will rise, so the price of bitcoin also rises sharply.

In contrast, the Brexit in the UK in 2016. Before the Brexit referendum came out, the GBP/USD was in a relatively stable state. As soon as the Brexit result was announced, the British pound fell against the US dollar, but the offer of Bitcoin against the British pound fell, and the decline was very serious. Because the people do not need to use Bitcoin for Bitcoin, and then use Bitcoin for the US dollar, I will use the British Pound for the US dollar. There is still a 2% fee for using the pound for the bitcoin and then for the dollar. The UK is not a foreign exchange-controlled international. The pound is fully convertible, so you don't need to use this kind of encrypted assets to use bitcoin or stable currency to make an intermediary for foreign exchange transactions. At this time, you should sell the bitcoin held in pounds sterling and sell it for US dollars. Putting the pound-denominated position down, the dollar-denominated position went up, so the sale of bitcoin to the dollar, the bitcoin price also fell.

Similarly, the RMB exchange rate also experienced significant fluctuations last year. We did not observe the domestic RMB price, because the platform quotes have been blocked, so we can't see it. But it is completely imaginable that everyone's demand for bitcoin has increased dramatically.

For developing countries, the government is wary of bitcoin and is wary of various stable currencies because it is priced in US dollars. It serves the United States. It does not serve the renminbi, and it has a nonlinearity in the financial market. The characteristic is that the risk is unpredictable. Suddenly a risk arises and it is possible that everyone will be caught off guard. Then, from the promotion of individual rationality to collective rationality, if we are from the perspective of individual rationality, we should all exchange large amounts of dollars during the depreciation of the RMB against the US dollar. But for reasons of exchange control, I should have to buy various crypto assets and then exchange it for dollars. It is personal reason. But what will the collective consequences of the situation be? The renminbi may fall faster, but what is the most valuable thing for the Chinese? house. If your RMB exchange rate has fallen sharply or even collapsed, will your house rise?

For the hundreds of thousands of bitcoins in your hands, you have left two or three million houses, which is the individual rationality leading to collective irrationality. That is because this is one of the reasons, so our central bank is the People's Bank, including the Foreign Exchange Administration's transaction on encrypted assets. It is strictly regulated, not strictly regulated, and is severely cracked down. Of course, we can see the effect of implementation, but from the perspective of national security, from the perspective of the security of the entire Chinese, it will not be allowed to develop.

03

Stable currency instability

The so-called stable currency is unstable because there is a lot of fraud in it, and USDT may have the possibility of fraudulent issuance, because the coefficient of change in USDT price is 0.94, which is close to one. What does this mean? This shows that its price is not a real price formed by the equilibrium of the market, indicating that it has a problem with the price, not a real stable price, or a price reflected by market supply and demand. This price is a typical price after manipulation. Because, in normal terms, if it is a price formed by market supply and demand, the coefficient in front of its price △Price should be a negative number, not a positive number.

Many people don't think about it. What is a stable currency? The stability of the currency value or the stability of the currency value. According to the theory of money, the stability of the currency value of a currency does not mean that the stability of my denomination is a problem of the purchasing power of my currency. Today's one hundred yuan can buy a pound of apples. After ten years, one hundred yuan can buy this pound of apples. That means that the yuan is stable. This one hundred yuan renminbi, I can stably change to a pound of apples within ten years, this is the stability of the currency value.

This is the result of rigorous theory and complex calculations. From the perspective of academic expression, the stability of the currency of a currency, what is its definition? It is the utility of this unit currency to the currency holder to the holder than the actual consumer goods that can be exchanged with this unit currency, and their ratio is stable.

Then in the economic system, we can imagine this kind of government as a decentralized organization, except that it exercises some functional governance functions, or called central planners. So in an economic system like this, my currency is stable because my currency is constantly being issued, why should I issue it? It’s not that I want to swindle money, or that the government’s increase in currency does not mean earning more wealth from the people and extracting more wealth. It is because the currency is used for trading.

If the economy is to develop and the money supply cannot keep up, there is no way to support the goods, or the transaction of the entire economic activity. Then the stable currency is the same, the stable currency is going to be bigger and bigger, and the number of stable coins will be more and more. If this price is a balanced result of market supply and demand, that is to say, there is no artificial intervention, or artificial fraud, then the more stable coins are issued, this is for the issuer. Liabilities. Whether decentralized or centralized, regardless of how it is issued, this is the issuer's liability. Then the debt itself is above the value of the currency, which is a negatively related relationship. That is to say, if there are too many debts issued, then the value of the currency is definitely unstable. Because the economic model that can be supported is not as the number of stable coins you issue is growing at the same time, it may remain stable for a while, but the number of your issuances will also increase. So at this time my value of the currency is actually falling. So in this case, I want to maintain the value of my currency stable, then I need another income to fill this gap.

For the government, the government's tax revenue, the government's fiscal revenue can be used to fill this gap. So what is this distribution mechanism for decentralization? It can only be charged, or it can be filled with the profit earned by the issuer. If he wants to maintain a dollar that doesn't fluctuate, or if the volatility is fluctuating, he has to fill in some of the cost or fill in some of the value. Because he can't collect taxes, he is not a government, he has no ability to collect taxes, then he can only collect fees from each trader, and his name is a stable fee.

Do most people need stable coins? No need. Who needs it? People who need to smoke money need and money launderers need. The person who smokes the money and the person who washes the money will not be the two types of people who may not be the same. As long as everyone has done stocks and has been stocks for a long time, you can see from the K-line chart that the k-line chart of Bitcoin is a typical map. If it is not an old leeks with seven or eight years of experience, don't speculate. Compared to other mainstream currencies including Bitcoin, Ethereum's Zhuang is still a little "conscience." US regulators (including the FBI) ​​are already investigating who is manipulating this market. There may be an investigation news announcement in this year and next. In the United States, this type of financial fraud can be sentenced to a maximum of 20 years. If you add money laundering, you may be able to sit in your life.

Some people say that Americans have relaxed supervision. Americans have no supervision over GUSD, and even registered with the New York Economic Management Bureau, so China should let it go. Don't listen to these people because he may be Zhuang. Some scholars are only fake scholars. If you really want to listen to their speeches, it is best to do some research.

Why is the United States so tolerant of cryptocurrencies, and not attacking and intervening like China’s New Deal? Because cryptocurrencies are all denominated in dollars, there is a dollarization of currency substitution.

Carbon chain value editing group produced

Speaker: Zhao Wei, Economics, Beijing Normal University