National Financial and Development Laboratory Yang Tao: Redefining the Micro Foundation of Money under the Digital Trend

The emergence of encrypted digital currency shows that digitalization has brought about the possibility of reconstruction of the financial industry chain and the boundaries of financial organizations, and the transformation of digital financial infrastructure has been “snapped”. This requires a new thinking from theory to practice. We must use this as an entry point to delve into and analyze the theoretical, policy, technical, and practical logic behind it.

Encrypted digital currency has emerged. The original concept, theory and operation of the currency have received unprecedented attention and challenges. The original digital digitization path and the impact of new digital currencies, legal digital currency and private digital currency, traditional scenes The “private currency” and the “digital private currency” of the Internet scene, entangled in various concepts, also increase the difficulty and complexity of understanding the problem.

In this regard, the author believes that Facebook will launch Libra's hot discussion as an opportunity, no matter how big the impact is, now must face the digital impact has been extended from the economic society to the financial sector. The trend of digitization has changed the economic organization model, the social division of labor structure, the boundary of industrial organization, and then influenced the mode of financial services from the demand side, and also brought about the possibility of reconstruction of the boundary of the financial industry chain and financial organization. Emerging financial entities, financial business division models, etc. Correspondingly, the financial market infrastructure is also inevitably affected, and the payment and settlement system is the core infrastructure. All of this requires new thinking from theory to practice.

The most important thing at the moment is that for digital currency, you should first observe and analyze on the same context. In the opinion of the author, we can start from the following perspectives.

The first perspective, the currency and the monetary system. The impact of the emergence of new digital technologies on the original currency concepts and currency boundaries will bring challenges to a series of systems that accompany the currency. According to the definition of currency in the traditional sense, the monetary value scale, storage means, trading medium and other functions, and the different functions of the currency must be unified to form a complete monetary concept. Of course, there are also non-mainstream researchers who have caused some discussion in history. For example, some new monetary economics researchers, some explore whether the currency function can be separated, such as whether the accounting function and the transaction media function can be separated. At the same time, all parties are also exploring how to redefine the micro-foundation of money in the new situation. There are probably two ideas for people looking at this aspect of the study: how to determine the position of the currency in a macro analysis, or whether other financial assets may replace the currency.

From this point of view, if based on the currency perspective, it is necessary to further judge whether Libra's influence is still at the monetary level or still far from the currency. In fact, although Libra has had a budding effect on certain currencies, it is still far from the perspective of currency.

The second perspective, paying for liquidation. For a long time, money and payments have often been mixed. When we discuss payment, it may be part of the function of money, but the research focus and connotation of the two are not consistent, and sometimes there are even big differences. Payment and settlement as the most important financial market infrastructure, the content is very rich. When studying payment issues, the types covered on the one hand may include payment systems, central securities depository, securities settlement systems, transaction databases, etc. On the other hand, the elements considered may include payment functions, payment service subjects, payment accounts, payment supervision, and payment. Institutional arrangements, etc. In recent years, the rise of payment economics has studied which pricing, transaction costs, and principal-agent issues are involved in the entire payment transaction mechanism. From this perspective, it is necessary to answer whether Libra has an impact on retail payments, especially cross-border retail payments. If so, how to dissect the internal mechanisms that bring about change. For example, it is based on the original retail account impact under the bank account-based system, or based on the potential impact and impact of the de-accounted, encrypted digital currency landscape.

In the global retail payment system, cross-border retail payment is indeed an important “pain point” area, and there are a lot of places worth optimizing. However, cross-border retail payments are limited in size, and Libra's expansion space is not as big as it might seem.

Libra may improve on the pain point of cross-border retail payment, but it does not have a subversive effect. After all, it is still inseparable from technical, compliance, and product constraints. Perhaps in some “weak currencies” and developing countries with low payment efficiency, some development scenarios can be won.

The third perspective, law and regulation. A group of scholars in history believed that the monetary and financial systems were not natural evolution, but the inevitable result of legal restrictions or government regulation. Under the conditions of laissez-faire competitive market, there is not necessarily a currency with two functions of accounting and exchange. The two existing functions of the currency will be borne by different substances, and the exchange of money in the market will be carried out. Eventually it will be replaced by "precise barter exchange." It can be seen that any financial innovations, including Libra, cannot be separated from the changes in the legal environment. Objectively speaking, the rapid development of the digital economy and digital finance has already had a major impact on the original legal rules. In the field of financial infrastructure under digital conditions, it is the top priority in the future.

So, what kind of challenges does Libra face in the face of existing legal rules at the monetary and payment levels, and what development space will be gained in the future changes in possible legal rules? As far as observations are concerned, Libra may be able to gain space with some “regulatory sandboxes” under increasingly complex financial regulation rules, but the overall outlook is not optimistic.

The fourth perspective, purely technology and business models. Others believe that the combination of Libra and new technologies, especially the application of blockchain technology, seems to be less closely. Even with blockchain technology, the indicators in the experimental environment are obviously too optimistic and more difficult to achieve in actual operation. Today, new generation information technology, including artificial intelligence, big data, interconnected technologies, distributed technologies, and security technologies, has completely changed financial institutions, financial products, financial markets, and financial rules. In this great historical context, Libra's new technical characteristics are also an important research perspective. Correspondingly, from the perspective of an Internet product, whether Libra brings challenges to Facebook's business model and business logic, whether it makes it more involved in the financial field, is worth pondering. At least Libra has not yet fully demonstrated the technological advancement behind it, and it seems to be more reflected in the transformation of business models.

In the face of the digital age, the transformation of digital financial infrastructure has come to the fore. We must use this as an entry point to delve into and analyze the theoretical, policy, technical, and practical logic behind it.

Source: Shanghai Securities News

Author: Yang Tao