From the 20th to the 22nd, in Moganshan, Deqing County, Zhejiang Province, the 10th New Moganshan Conference (2019 Autumn Forum) and the 35th Anniversary of the Moganshan Conference were held. With the theme of "Understanding and Responding to the Great Changes in a Hundred Years", this seminar has in-depth study and understanding of General Secretary Xi Jinping's judgment on "a major change in the past 100 years", the impact of the new scientific and technological revolution on humanity, and China's reform and development. In-depth discussions on the times and other aspects.
On the afternoon of the 20th, the sub-forum "Digital Finance: Trends and Challenges" was held. The Digital Finance Sub-forum focuses on the current digital financial hotspot issues, focusing on new concepts such as distributed digital finance, digital assets, and open finance, and substantively exploring the potential and direction of digital finance.
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Independent White Finance Researcher Long Baiyu attended and delivered a speech entitled "Digital Currency and Inclusive Finance". He said that the core of asset digitization is the transparency, traceability and transparency of information, as well as the broad and complete source of information, rather than structured derivatives, with the aim of accurately assessing asset risks. Its value comes from expanding the pool of available reserves for stable currency issuance.
The following is a speech record:
Today my topic is mainly inclusive finance.
An overview of the modern monetary system, Dr. Shao Yu has already said something, I can pass it quickly. First of all, the essence of modern money is a debt-based system. The central bank creates cash and reserves based on the reserve pool. In essence, commercial banks are actually creating money out of nothing. However, the central bank limits the ability of commercial banks to create money through the capital adequacy ratio, liquidity ratio, etc. required by the Basel Accord. In the event of a crisis, a series of plans, including a deposit protection plan, the last lender of the central bank, and government bailouts, can protect commercial banks in crisis. It essentially turns the private debt of a commercial bank into public debt.
There are three uses for money creation: productive investment, consumption, and speculative investment. The total amount of new currency is basically 80% for the third type, speculative investment, and asset speculation has no substantial contribution to GDP. We are talking about problems now because we want to talk about inclusive finance. The first problem is moral hazard, which is essentially an agent problem. Bank executives and shareholders have strong incentives to pursue high-risk speculative opportunities because of these institutional protections, such as the liability system of the Bank Limited, the deposit insurance plan, The central bank’s last lender, government bailout, and so on. Even in the 2008 financial crisis, the Bank of America bankruptcy law allowed commercial banks to go bankrupt government assistance, but individuals did not allow bankruptcy. The head of the UK financial regulator strongly criticized the legislature for doing so.
The reason why banks are “big but not down” to kidnap the economy is actually because it creates liquidity through lending. The UK's big banks create an average of 1/6 of the liquidity in the economy, so banks can't fall.
Why is the financing expensive, the average cost of using the society is high, and the average spread of Bank of America in 2018 is 3.5%, why not 2.5%? Because the bank "collectively colludes" because it is a monopoly system, it is protected, and there is no adequate competition within the country. SME financing is difficult. Large banks are reluctant to lend to small businesses because of efficiency and cost. It is the first reason.
The second reason is speculation. Banks can create their own currency. Self-operated speculation makes the best money. This is the root cause of financing difficulties for SMEs.
The mainstream monetary theory generally treats money as a rare thing similar to land, so the production department needs to pay rent or interest for rare things such as land and currency. Actually, it is not. We know that the main form of money, M2, is actually a private bank. Debt, private debt is created casually, so money is not a scar.
Economists Richard Verner and Michael Hudson have made it clear that the essence of money is a tool for the financial food class to transfer payments from entities (in the case of the US dollar, the banking coinage tax revenue accounts for about 3% of GDP in 2018).
We have skipped the parts of high leverage, debt crisis and financial crisis. We are now looking at the monetary system from a different perspective. First, any monetary system is a monopoly system design. Obviously it is not neutral. This is a very basic point of view for me today. In any history, any monetary system cannot be neutral. It is a monopoly system designed by a few elites. Therefore, it is necessary to embody the principles of fairness and justice.
Second, the success of a monetary system actually requires multiple participants.
1. As a contributor to the reserve, such as gold, for example, China's foreign exchange reserves (foreign exchange contributed by the people) provide the value support of the monetary system.
2. Central banks and commercial banks, which are essentially creating money, regulating the supply of money, and managing the risk of financial stability, they are engaged in risk control (in the monetary system).
3. In essence, a merchant is raising the awareness of a monetary system and promoting its use.
4. End users are also important contributors to the monetary system, especially now.
why? Because the formation of international currency in the past relied on cross-border trade, the users of past cross-border trade payments were mainly merchants, governments and companies, and their payment habits had a strong inertia. But now it's different. Now cross-border trade is more of an online transaction. The demand is mainly from a wide range of users. Their demand for payment is simpler, faster, lower cost, and has a huge user base and network benefits. . Especially the new currency like Libra, which is the most feared of the current monetary system leader, because their huge user base and network benefits can prompt a new currency to be quickly accepted.
Third, can we expand the choice of reserves? Past reserves: gold, foreign exchange, sovereign debt, national debt, etc. In theory, an asset can be used as a currency issuance reserve as long as it is tradable and liquid, as long as its risk can be managed. It is also the recent talk of Yao’s director that digital assets are the basis for digital currency issuance.
The governance structure of the monetary system has the following problems: 1. The independence of the central bank. Every time the financial crisis, the central bank demands greater independence and greater rights, but does this independence lead to better financial stability? It is actually a question mark. 2. The problem of bank agents is getting more and more serious. Because the concentration of banking industry is getting higher and higher, it is impossible to expect the bigger the problem of bank agents.
The reform of the monetary system is very important. It is mainly aimed at the causes of the financial crisis. Some of the main directions include the separation of the bank's monetary and credit functions, the full reserve banks, and the control of the total amount and distribution of money.
I talk about these three points, control the distribution of money, 80% of the money has entered the field of asset speculation. If there is a way to control the flow of money and inhibit it from going to the speculative field of assets, the currency will have a stronger effect on the real economy. .
Mainstream economists Richard Verner and Adair Turner and Michael Kumhof have praised the Chinese central bank's policy of implementing so-called credit window guidance. This has played a key role in China's economic miracle over the past few decades, so it is very good (in some respects) that everyone should not underestimate China's monetary system.
The core of asset digitization is the transparency, traceability and penetrability of information, as well as the broad and complete source of information, rather than structured derivatives, with the aim of accurately assessing asset risks. Its value comes from expanding the pool of available reserves for stable currency issuance.
In fact, I don't agree that monetary innovation after asset digitization can engage in Mn. I think that is actually a risk of financial stability. When your reserve pool is larger, you can actually have more reserve capacity to create M0, so you don't need to do Mn.
Regarding the decoupling of asset-issued digital currency (stable currency), I actually had an article last year (click to view: "CFMI Pass Financial Model and Stabilizing Coin Mechanism" ). Teacher Zhu also made a comment, explaining in great detail how to be based on numbers. Assets to issue stable currency.
There are several core points:
1. Setting the list of qualified collaterals is to set the access conditions for digital assets that can be used to mortgage stable currencies, mainly considering volatility risk, liquidity risk, market capitalization, holding concentration, credit risk, and exchange rate risk. The core is to calculate the asset's market discount and liquidity risk by calculating the mortgage discount rate of the asset.
The stability mechanism is mainly over-collateralization and mandatory liquidation. Market infrastructure to rely on: digital asset custody, trading, clearing, etc. and trusted market data (used to assess asset risk). The trust that Fan Hua talks about today is actually a major premise of the explosion of digital currency. I must say this clearly.
The mortgage discount rate can be reassessed hourly as needed, additional collateral is required or forced redemption is performed as needed, and the central bank now counts once a day.
The digital assets used to stabilize the issuance of collateral for coins are expected to increase in value and avoid price volatility. It is a counterbalance to the speculation in the current digital asset trading market. Digital assets that do not meet the conditions for qualifying collateral access may be used as collateral to borrow stable currency from a stable currency bank, which can improve the current ICO.
The monetary system is a generalized economy. In the past, the coinage tax was collected by the central bank and the government, but I have already analyzed it. Participants in a monetary system have at least four parties. In the era of the universal economy, all of these parties should participate in the distribution of the coinage tax, and the contribution is measurable. The allocation rules can be adjusted according to the staged operational needs, either manually or in smart contracts. Allocation method: The mortgage warehouse issued by each stable currency is a smart contract, corresponding to the blockchain/coin chain address, paying dividends denominated in stable currency to the corresponding address.
Monetary policy and financial stability. To separate the function of money and credit, the issuance of full reserves, under this premise, traditional commercial banks are actually canceled the right to issue currency, but at this time bank bankruptcy will not affect liquidity, so it can be done And can be inverted."
Traditional deposit and loan business will have different forms, because you can't create M1/M2. Based on smart contracts, flow control of fund allocation can be achieved with the aim of curbing currency for speculative investment.
Someone asked really? Bank of England's 2016 DSGE simulation results – based on the central bank's 30% GDP of the central bank's digital currency, zero inflation and a 2% annual GDP growth rate can be achieved. We know that the current M2 circulation in the United States is about 70% of GDP.
Let’s take a look at the governance structure of the central bank. To speak this thing, we must talk about the German banking system. The German banking system I personally think is the best in the world (maybe many people don't know).
The German banking system is characterized by three poles: commercial banks, savings banks, and cooperative banks. The three poles are relatively balanced, and they all account for about 20-25% of the bank's assets. Today, they mainly talk about cooperative banks. Cooperative banks and savings banks are essentially community banks.
Characteristics of cooperative banks: 1. Maximizing return on capital is not the only or even the main business objective. 2, owned by members, usually individual or individual entrepreneurs. 3. Mainly serve local communities – families and small and medium enterprises. 4. Small scale, low risk preference (almost no participation in speculation).
According to statistics, no community bank (cooperation and savings bank) in Germany has gone bankrupt for 200 years. None of the 2008 financial crises required government assistance, and their financial indicators such as yield, return volatility, and operating costs were superior to commercial banks.
Characteristics of the governance structure of cooperative banks: 1. The decision-making mechanism is one person, one vote. 2. The share cannot be transferred. Only the initial capital investment can be obtained when exiting. 3. German legislation restricts the merger of commercial banks with community banks. 4. Although the names of cooperative banks in different regions are the same, they are all independent legal persons.
Interestingly, a number of cooperative banks in a large region will jointly invest in the establishment of a regional network central agency responsible for technology, training, branding, product development, liquidity and liquidation guarantees, prudential supervision of cooperative banks, and Other single cooperative banks cannot provide financial services (such as financing, mergers and acquisitions) to users; cooperative banks and regional central institutions have distinctive "circular powers". Compared with other commercial banks, cooperative banks better solve the problem of agents.
Summarize the understanding of inclusive finance:
1. Allow everyone to participate in the coin-to-asset digitalization expansion pool without any threshold, and to issue stable currency to the central asset mortgage.
2. Treat everyone's contribution to the monetary system fairly and share the currency-based mechanism of the coinage tax-stable currency.
3. Allow everyone to use the currency at a reasonable price – a wider range of digital assets as eligible collateral, go to the central bank, and create money to curb asset speculation.
4. Financial stability of the monetary system, democratic and transparent, sustainable development – full reserve banks, decentralized governance structure and financial stability mechanisms.
How to look at the internationalization of the RMB from the perspective of inclusive finance?
We assume that there is a synthetic cooperative currency (compared to Mark Carney's synthetic hegemonic currency): allowing other countries' legal or national debt to join the reserve pool, the proportion of assets of each country can be based on the size of the economy; a certain percentage of native digital assets can be allowed (such as Bitcoin). Essentially it is the sharing of the coinage tax – a trade subsidy that can be understood as a permanent form. Going to the central bank governance model – other countries can form a renminbi digital currency bank super node with partial currency distribution rights. Such a design, the country's legal currency or national debt into the reserve pool dominated by RMB assets, can borrow the credit of the renminbi to achieve its domestic financial stability and sustainable development without damaging its monetary sovereignty.
thank you all!