Babbitt column | Liu Chang used: credit currency theory should not kill password currency

At present, the mainstream monetary theory is still the theory of commodity currency. That is to say, the essence of money is the exchange medium. It is difficult to match the barter exchange, and gradually evolves the commodity that is fixed as the exchange medium—the currency, that is, the general equivalent. But in fact, after the modern monetary system is out of the gold standard, commodity currency theory cannot explain the main monetary phenomenon of credit creation currency. The theory of credit money is on the rise. The basic judgment is that credit creates money. The sovereign currency endorsed by national credit is the basis of the credit monetary system.

No matter whether it is commodity currency theory or credit currency theory, there is no place to decentralize the cryptocurrency. Based on commodity currency theory, bitcoin is not a commodity, there is no physical support, no intrinsic value, and it cannot be a currency. Based on the credit currency theory, Bitcoin has no national credit endorsement, is not legal, and cannot be a currency.

Commodity and currency theory will not be discussed first, and credit currency commentators have enough criticism. Is the credit currency theory necessarily correct? If so, Bitcoin and other decentralized cryptocurrencies really have no future, and they can only honestly wait for the central bank's digital currency. However, credit currency theory may not be correct. The world-wide credit currency (funded currency) system is not necessarily the ultimate form of money. In the history of Chinese currency, there has been a rise and fall of credit currency. Looking back, it can cool down the enthusiasm of credit currency.

China's credit currency can be traced back to the "pecco" of the four years of Emperor Wu of the Han Dynasty. It is made from the white deer skin of Linyuan. Each piece has a face value of 400,000. In order to improve value and anti-counterfeiting, it is painted with beautiful paintings. Whether it is leather or painting, it is far from supporting the face value of 400,000 yuan. This is a real credit currency, but it does not seem to be widely distributed. During the Tang Dynasty, there were exchange notes between merchants, which were called "flying money", that is, money orders, which were not liquid and could not be counted as banknotes.

It is recognized by the academic circles that the earliest banknotes in China were the "communists" in the early years of the Northern Song Dynasty. It first appeared in Sichuan because Sichuan used iron money at that time, which was cumbersome and inefficient. In order to facilitate the transaction, the folks spontaneously produced paper bills that could be circulated, and were gradually accepted and managed by 16 rich merchants. However, with the decline of these 16 merchants, Song Tiansheng (1023) was taken over by the court and set up the Yizhou diplomatic affairs. China's banknotes have turned from civilian to official, which should be the earliest "fundamental currency."

In the 200 years from the Northern Song Dynasty to the Southern Song Dynasty, banknotes have been circulating. Of course, since it is a credit currency, it is inevitable that it will be excessive and inflation. The main reason is the financial needs of the court. Because of the loss of the credit of the French currency caused by inflation, the bank’s banknotes have adopted different names such as “communication”, “money introduction”, “Guanzi” and “huizi”, and it has been quite successful to fool the people for 200 years. In the last moment of the Mongolian army's defeat of the Song in 1274, the Song Dynasty also issued a dozens of Guanzi as an anti-yuan fund, but it was too late.

Although the Song Dynasty was extinguished, the cash bank system of the Song Dynasty was not extinguished, but it was carried forward. The banknotes of the Song Dynasty were still circulating in parallel with copper coins and gold and silver, but they have not yet achieved unified national circulation. When the Jin Dynasty was in the Northern Song Dynasty, it saw the magical effect of banknotes in raising military expenses, and used banknotes on a larger scale. With the expansion of the war with Song and Mongolia, the gold banknote system expanded rapidly, and the final moment accelerated the demise of gold.

After Mongolia’s elimination of Kim and Song, it vigorously promoted the banknote system. The Yuan Dynasty banned the circulation of metal currency. Only banknotes were circulated. Folks could buy and sell gold and silver, but they must be converted into banknotes to shop. The management of banknotes in the Yuan Dynasty was slightly better than Song, and much better than gold. It set up the cash reserve system of banknotes from the beginning to ensure the stability of the currency. But then with the pressure of the war, the reserve system failed to persevere. The Yuan Dynasty lasted for nearly 100 years, and by the time of its death in 1368, banknotes were also a frenzied inflation.

With the collapse of the banknote system during the Song, Jin and Yuan eradications, the banknote system began to decline. The insurgents at the end of the Yuan Dynasty have begun to resume the circulation of coins. At the beginning of the establishment of the Ming Dynasty, it also emulated the Yuan Dynasty. It only used banknotes and prohibited the use of copper coins and silver money. However, the people were unwilling to accept it, and later they had to start to cast money and gradually resumed the circulation of coins.

It was established in the 17th century in the Qing Dynasty. Manchu is the descendant of the original Jinren. They seem to have a deep memory of the tragic history of the Jinchao's banknote inflation collapse. They fear the banknote system, and the monetary system uses silver money and copper coins. Banknotes are issued only in an emergency, but they are abolished after a difficult time. Three hundred years later, people have forgotten how to live under the complete credit currency (banknote) system.

Our modern credit currency system has nothing to do with the paper money system of the Song and Yuan Dynasties. The modern credit currency system can be traced back to the banknote system of John Law in France in the 17th century. At this time, China's paper currency system has ended. John Law’s experiment collapsed, but after three hundred years of tossing, finally after the Second World War, the global credit currency system was finally established.

China's paper currency system was not fully funded at the outset, but a credit currency system. From the Song Dynasty to the Yuan Dynasty for 300 years, the Yuan Dynasty is a complete banknote system. After the Yuan, the banknote system declined and the Qing Dynasty had returned to the metal currency system. The modern credit currency system is a precious metal standard for three hundred years. The complete credit currency after leaving the gold standard is also seven or eighty years old. If the credit currency is regarded as the eternal form of money, the vision is too short.

Commodity and currency theory does not explain the phenomenon of credit currency and needs reflection and breakthrough. The emergence of credit currency theory is an advancement in monetary theory and worth learning. However, considering credit currency as the final form of money and considering credit currency theory as the only correct theory, it is too conceited to decide various monetary phenomena.

Monetary theory is the most complicated part of economic theory, and the most backward part of theoretical practice. Counting the history of Chinese paper money, the currency currency has been widely circulated for thousands of years, and the theory of credit money in economics has begun to rise. The cryptocurrency is the latest monetary phenomenon. It is neither a physical commodity nor a credit endorsement. Taking history as a guide, monetary theory researchers should remain humble and participate in and study the practice of cryptocurrency. Even if the theory of cryptocurrency cannot be put forward, don't rush to use credit currency theory to kill cryptocurrency.

Author: Liu Chang with