20,000 words and heroes: currency competition and system reshaping under the tide of digital currency

Author: Dr. Long White Tao

Guide

Synthetic currencies like Libra may be at the heart of cross-border, large-scale systemically important social and economic platforms that redefine the way in which payments, economic activities, and user data interact. The emergence of these new currencies may change the nature of currency competition, the pattern of the international monetary system, and the role of government-issued public currencies.

1 Introduction

Digitization has revolutionized the payment and currency systems. Although electronic money appeared in the 1950s, the instantaneous, peer-to-peer value transfer method created by Bitcoin was unprecedented. Synthetic currencies like Facebook-led Libra may be at the heart of cross-border, large-scale, systemically important social and economic platforms that redefine the way payments, economic activity, and user data interact. The emergence of these new currencies may change the nature of currency competition, the pattern of the international monetary system, and the role of government-issued public currencies.

The development of digital money in China's technology giants Ant Financial and Tencent and the rise of Libra's super-sovereign synthetic digital currency have also had a profound impact on the domestic sovereignty of the renminbi and the process of internationalization abroad.

• Procurator-General of the People's Procuratorate of Xihu District, Hangzhou: Using blockchain technology to extract and review criminal electronic data
• A16z crypto Partner: 12 key issues in the field of cryptocurrency
• Ben Fisch, a cryptographer at Stanford University, confirmed attending the World Blockchain Conference in Wuzhen. He was a public chain developer such as Ethereum and Filecoin.

This article discusses the key issues and economic impact of digital currencies. First, we discuss that digital currency deconstructs the functions of traditional currencies (value storage, exchange media, and account units), thus making competition between currencies more intense. Digital currency can be specific to certain roles and can only compete as a medium of exchange or just as a value store. Second, digital currency issuers differentiate their currencies by re-bundling functions that separate currency functions from traditions, such as data collection and social networking services. The convertibility between digital currencies and the interoperability of platforms are critical to maximizing the benefits of competition. Third, the importance of digital connectivity may transcend macroeconomic linkages and will lead to the creation of a Digital Currency Area (DCA) that links money to users who use a particular digital network rather than linking the currency to the country. . The international nature of these digital currencies will make the economy vulnerable to "digital dollarization", that is, the national currency is replaced by the digital platform currency rather than another developed country currency. Fourth, the integration of digital currencies with powerful platforms and services raises questions about private and public currency competition. In the digital economy, cash may actually disappear, and payments may revolve around social and economic platforms rather than traditional banks, which will weaken traditional monetary policy transmission mechanisms. The government may need to provide Central Bank Digital Currencies (CBD) to maintain currency independence. Fifth, a typical digital currency case is discussed using the analytical framework established in this paper.

2 Traditional monetary system paradigm

To understand the importance of digital currency, we first describe the design of the traditional monetary system, then define what is an independent currency and discuss how digital currency fits into the traditional paradigm.

2.1 The structure of the currency system

Traditionally, the monetary system is organized around an "anchor", and any currency is ultimately associated with a fixed number of anchors. Anchors can take many forms, such as (a group of) goods/services or legal currency. For example, in the gold standard, gold is an anchor – the currency of each unit issued by the government can be converted into a gold unit. After World War II, this gold-based anchor supported the entire international monetary system under the Bretton Woods system, when the dollar had the legal convertibility of gold, and all other currencies were pegged to the dollar. At present, the anchor of most monetary systems is the government-issued legal currency. Further, most of the anchors of the French currency are the purchasing power represented by the price level of a defined set of goods and services, that is, the inflation rate.

Currency issuers can provide full and unconditional convertibility, or they can instead use other assets to support the currency without providing full convertibility. Under the convertibility arrangement, an issuer of a monetary instrument (which may or may not be a separate currency) makes a legally binding commitment to exchange another payment instrument at a fixed rate. Exchangeability has two purposes. First, it is used to maintain the value of money. The issuer must fully support its issuance with a reserve of another payment instrument, otherwise it may risk losing its asset claim if it cannot maintain its promise of convertibility. Second, convertibility allows one payment instrument to replicate the value store and account unit attributes of another payment instrument. The convertibility between several different types of currencies can create consistency between them, which is called "currency identity." A typical example of a publisher's legally binding commitment to convertibility is the bank. Bank deposits can be exchanged for an equivalent amount of legal currency issued by the corresponding government. If the bank defaults on its debt, the deposit currency it issues will cease to flow, and the deposit holder will receive a claim for the bank’s non-liquid assets.

In addition to convertibility, monetary support also supports the value of currency instruments, but it gives publishers greater freedom. Issuers who use a set of assets to support their currencies do not always provide full convertibility of these assets. Even if the issuer targets the exchange rate of another currency, it may abandon its goal, and in doing so, it will not lose its claim for its assets. Instead, issuers can manage their monetary value on their own and exchange those assets by issuing or repurchasing currencies. Typical examples of monetary support arrangements are currency pegs and currency bands (representing the range/range of floats specified for a particular currency), and another example is cryptocurrency stabilization, which maintains its currency by expanding and contracting it. The value is relative to the stability of the official currency, such as Tether/USDT (linked to the US dollar). In the above example, the issuer may think that it is advisable to manage the exchange rate, but he will not face legal consequences if he deviates from his original plan.

A related difference is the endogenous currency and the exogenous currency. An endogenous currency represents a claim against a private issuer, which is a liability on the issuer's balance sheet. If the endogenous currency issuer fails to meet the claim, usually involving the conversion to other currency instruments on demand, the endogenous currency holder will receive the remaining claims for the issuer's assets. Bank deposits and many forms of electronic money, such as Alipay balances, are endogenous currencies. In contrast, exogenous currency is not a claim, it does not appear as a liability for any private entity's balance sheet. However, exogenous currencies may be supported by another type of currency. For example, government-issued fiat currencies, whether or not they are linked to other currencies, are exogenous currencies. Similarly, cryptocurrencies with and without support are exogenous currencies.

Finally, there are many forms of currency. The two main forms are account-based currency and token-based currency. The main difference is the verification process of payment. In an account-based system, the content that must be verified is the identity of the payer. Therefore, the bank deposit is the account currency – if the bank can confirm that the payer is the account holder, the payment initiated from that account is considered valid. If the bank is later found to have misidentified the payer, the bank assumes responsibility and refunds the account holder. In the token system, what must be verified is the authenticity of the exchange project. Cash and coins are token currencies that have existed for centuries. In a cash transaction, if the payee confirms the authenticity of the cash, he will accept the payment. This means that if the cash is forged, he will actually take responsibility. The cryptocurrency and some modern electronic money are also token currencies. For example, Digital Currency/Electronic Payment (DC/EP) is an electronic alternative to cash, which is a token currency like cash. If you need to trade DC/EP, all you need is a password to connect to a specific digital wallet. No one is asked to verify that the person providing the password is the real owner of the wallet (it is not excluded that the Chinese central bank needs to verify the identity of the trader in large transactions for regulatory reasons). Similarly, to trade cryptocurrencies, the payer must sign the transaction using a "private key", regardless of who submitted the private key. In general, the account currency is often an endogenous currency and is associated with credit creation, which is usually independent of credit provision. Therefore, expanding the supply of account currency may have a completely different impact than expanding the token currency.

2.2 Independent currency

A set of payment instruments forms an independent currency if the following two conditions are met.

1. These payment instruments are denominated in the same account unit;
2. Each payment instrument in this currency can be exchanged for each other.

From the definition of independent currency, money instruments are connected to a currency through their account units rather than exchange medium or value storage attributes. Therefore, cash, reserves and bank deposits denominated in the same official currency belong to the same currency, although they have very different technical characteristics.

If a payment instrument does not belong to an existing currency, it is an independent currency. According to this definition, a currency exchange system similar to the Hong Kong dollar is a currency that is independent of the US dollar because it is denominated in its own account unit and the (US dollar) peg by the Hong Kong Monetary Authority is not a legal constraint. Bank deposits denominated in US dollars are not independent currencies because their exchange is a legally enforceable arrangement. In other words, one element that distinguishes between independent currencies is the issuer's level of commitment. The issuer of the independent currency denominated in an existing currency ultimately retains the option to break any redemption commitments it has made in the past. A payment instrument that is not a separate currency, if its issuer breaks the promise, it will face some legal consequences.

The transition from the European Exchange Rate Mechanism (ERM) to the euro can explain how several independent currencies are combined into one. During the transition period, the countries concerned can decide to get rid of ERM without losing their ability to issue currency. After the introduction of the euro, the countries concerned did lose the ability to issue currency, and multiple currencies were no longer independent.

According to this definition, several popular digital currencies are actually independent currencies. For example, Facebook's Libra base basket consists of a variety of official currencies, Libra may be denominated in its own account unit, or may be denominated in US dollars, but even if it is denominated in US dollars, there is no legal constraint on the dollar convertibility in the basket. Libra is therefore independent (for ease of discussion, this article assumes that Libra will use its own account unit, although I believe that it is more likely to be denominated in US dollars). Most popular cryptocurrencies, such as Bitcoin and Ethereum, are clearly separate currencies because they cannot be converted into anything and have their own account units. Even some stable coins, which are supported by bank deposits owned by the issuer, are also independent currencies, because even if the issuer unilaterally gives up monetary support, these currencies can continue to exist on the exchange.

Other types of digital currencies are not completely independent currencies, but they also support instant, point-to-point digital transfers. For example, the Central Bank's DC/EP and Kenya's M-Pesa allow existing currencies to be circulated in new ways in a new way, but their issuers are legally obligated to remain convertible to the national currency (DC/EP is Renminbi, M-Pesa is a shilling).

3 Changes in the nature of currency competition

3.1 The role of money and traditional currency competition

Hayek’s 1976 book, “Non-Nationalization of Money,” argues that the solution to mismanagement of money issued by the government would be competition between various privately issued currencies. Hayek’s competitive currency proposal calls for a system in which multiple assets can have all three currency attributes. This is actually very difficult.

Traditionally, money can be used as an account unit, value store, and exchange medium. Each role of money is to overcome a different kind of economic friction.

The role of the account unit may be most important for understanding the currency competition and Hayek’s proposed difficulties. Account units are created to alleviate the relative price tracking of multiple different commodities in an economy. Account units allow agents to convey value in an easy-to-understand way. More importantly, the norms of account units and monetary policy rules affect the risk sharing between agents in the economy (in an incomplete market environment). Agents tend to draft contracts at nominal prices because these are the prices of their conceptual value, so in response to shocks, monetary policy redistributes resources between borrowers and lenders. In other words, periodic monetary policy can effectively transfer risks. In a world where agents are subject to cognitive constraints, a single account unit's monetary system plays an important role in ensuring that markets operate effectively and share risks. But if there are multiple competing account units in an economy, all goods and services have to be priced in multiple account units, which will bring great management costs and confusion. This is the biggest problem facing Hayek's competitive currency proposal.

The need to store value comes from the inability of economic actors to coordinate and commit to future value transfers. For example, farmers must compensate workers on the farm in some way. But farmers may not be able to credibly promise to give the latter a portion of the produce after the workers have completed their work. Instead, farmers can pay money to workers while they work, allowing the latter to buy agricultural products in the future. Importantly, only when workers believe that these currencies will retain their value in the future will they be motivated to work, so money must be a store of value. In Hayek’s vision, money will compete primarily as a value store. Reliable issuers who are able to maintain monetary value will succeed, while other issuers are driven out of the market.

The role of the exchange medium stems from the double coincidence that needs to be overcome. This problem is the key friction that hinders the economic efficiency of barter. Without money, any two economic agents can meet, and only when everyone has a commodity (or service) that the other party needs. This situation is extremely rare in professional economies. For example, a lawyer who wants to take a taxi can only do so after finding a taxi driver who needs legal aid. Currency allows trading without double coincidence. When the buyer wants the goods produced by the seller, the buyer can simply transfer the money to the seller in exchange for the goods. In fact, exchange media is used to lubricate transactions in the economy, which can lead to the bubble value of liquid assets. Therefore, a liquid asset (such as a currency) that never pays dividends can have a positive value (such as a bubble value) because its value is derived from the role of its ancillary transactions.

3.2 Two forms of currency competition

We define full competition and partial competition between monetary instruments.

Full currency competition : Under full competition, money competes in the role of an account unit. Competition occurs between currency instruments that are denominated in different account units, different price systems, and inflation rates. Money can compete internationally like official currency, or it can compete domestically, as long as private entities are allowed to issue their own currency (as in the era of free banking). The existence of a reputable, well-established and stable inflation currency will constrain the issuer. This is the type of competition that Hayek emphasizes.

Partial competition for monetary instruments : In the case of partial competition, monetary instruments denominated in the same account unit compete in the role of exchange medium. Competition between such monetary instruments is already prevalent in countries. Deposits issued by different banks compete with each other and with electronic money instruments such as tokens in digital wallets. To increase efficiency, regulators often encourage competition between monetary instruments.

3.3 The inertia of money is decreasing

In a speech on "The Future of the International Monetary System", ECB Executive Board member Benoye Seure discussed the inertia of the digital currency competition and the replacement of the old currency.

Historically, the inertial power of international currency use is very large, because higher conversion costs, lock-in effects, and habitual persistence are powerful forces that help maintain the status quo. In the past, the formation of international currency was generally guided by the role of currency as a medium of exchange. However, in the past, international payments were mainly carried out by companies, merchants, banks and governments, mainly in the form of wholesale transactions for large players in global trade and financial markets. For example, banks in Amsterdam and Hamburg fulfilled the main functions of the central bank as early as the early 17th century, and were created to provide merchants with transfer deposits as an efficient and stable payment method. The rise of the British pound as an international currency began in London as a so-called commercial bank providing loans to merchants to finance import and export. After that, the pound developed into a tool for international investment and became a reserve currency. For companies, merchants, banks, and governments, agreeing on an international monetary standard and switching from one international monetary standard to another involves significant costs. They usually hold large amounts of money denominated in major international currencies and therefore bear exchange rate risk, believing that this currency will remain the world's main payment unit in the future.

But this situation has changed. The recent wave of globalization, coupled with the rapid growth of online services, supports consumer demand for cross-border payment services that are faster, cheaper and easier to use. For example, global travel traffic has doubled in the past 15 years. The number of Internet users has also doubled, and the number of mobile phone users has doubled. The cost of sending data has been greatly reduced, and access to more convenient services has expanded. In just a decade, global remittances have increased by more than 50%, while cross-border e-commerce activities have tripled. As a result, new and emerging private payment solutions are targeted at consumers and workers, not merchants. Consumers and workers constitute a larger potential user base and generate relevant network externalities.

Available evidence suggests that in terms of retail consumer payments, transaction and conversion costs are much smaller than traditional currencies used for wholesale cross-border trade and finance. This kind of network externality will be stronger for global networks, and it may make international currency competition become a more dynamic competition in the future.

3.3 Reduced switching costs and currency deconstruction

Hayek’s 1976 proposal to establish a proprietary currency competition system faces a fundamental problem – the use of money shows strong network externalities. The need for an account unit creates network externalities, just like a common language. In a society where everyone speaks only Chinese, it is very difficult to speak only English. Similarly, in a society where everyone is accustomed to using RMB, it is very difficult to trade in rubles. Just as learning multiple languages ​​is difficult, it can be difficult to use multiple currencies and track their relative value, so there is a strong incentive to use only one currency.

Switching costs also creates network externalities. In the past, transaction costs made it difficult to switch frequently between different currencies, which gave people the incentive to trade in their currency area. This motivation for coordination means that in the past, money could not compete effectively. First, the existing official currency has a huge advantage. Once a resident of the country adopts a currency, it is difficult to replace the established currency with a new entry currency, even if these new entry currencies are far superior to the existing currency in all respects. In rare cases, such as during a period of severe trust in established currencies, the official currency may be replaced. The new dominant currency is always an existing national currency rather than a privately issued currency. Second, even in the historical period when many competing currencies do circulate, the resulting competition is confusing rather than beneficial. For example, until the mid-nineteenth century, in most states of the United States, commerce was carried out in a variety of strangely chaotic currencies. In addition, there were some transactions in the United States that had a large change in the price of bank notes, because these banknotes were The assessment of solvency is different.

The economic competition of digital networks, especially digital currency competition, is completely different from traditional currency competition. The Internet provides the infrastructure on which to build business networks and social networks. Amazon and Alibaba have built their entire ecosystem on the platform of trading various commodities. Both Facebook and Tencent have a social network that is associated with 2.8 billion people and 1 billion people. Once these networks are established, information can be spread cheaply and almost instantaneously. The information can then be automatically converted to any form that is most convenient for the recipient. Modern technology makes it possible to use digital tokens for frictionless, de-intermediation peer-to-peer transactions. These characteristics of the digital network weaken the rigidity that hinders competition in the traditional environment.

Network externalities that hinder competition in traditional environments can actually enhance competition in the digital environment. New currency issuers can use a network of communication and trading systems to instantly access a large number of potential counterparties across multiple countries. The network helps to spread information about the currency and helps to adopt it, as any adopter knows that other potential adopters are connected to a common payment network. Therefore, the structure of the digital network reduces the barriers to entry of information that exist in the traditional environment.

In the digital environment, the switching cost that seriously affects traditional currency competition may be greatly reduced. The ability to exchange peer-to-peer values ​​in the network eliminates the need for third parties and therefore eliminates any fees that the party charges in currency exchange. Users can set up their mobile devices to automate currency conversions when needed. Mobile applications will also reduce the need for financial expertise in currency transactions. In principle, applications can even automate their devices for cross-currency arbitrage.

In the past, given that trade mainly occurred in geographical areas, money could not spread across regions. Only a few currencies, such as the US dollar and the euro, managed to do this. Digital networks are also particularly well suited to address the spread of currency across geographic regions. While geographic constraints limit the distribution of physical currencies, digital currencies are free to circulate within networks that cross borders, serving tens or even hundreds of millions of participants.

The reduction in switching costs will lead to one of the most significant features of digital currency competition – the deconstruction of currency roles. When the switching cost is low, there is no longer a strong incentive to use one currency at the same time as a value store, exchange medium and account unit. Instead, network users can seamlessly switch currencies and convert units when needed. For example, if currency A is a good value store, but the exchange medium is poor, and currency B is a good exchange medium, but the value is stored poorly, the user can choose to hold A when not trading, only before the transaction Instantly convert part A held by it to B. The fact that B's value is not well stored does not have any impact because the user holds its share for a very short time. Therefore, unlike Hayek’s vision, B is not necessarily pushed out of the market to support a more stable A. In contrast, digital networks can create an environment in which both can thrive and serve different purposes.

Similarly, if two agents with different account units wish to exchange value on a digital network, digital technology can easily convert the quotes provided by one agent into units understood by another agent. Just as voice translation software eliminates the need for conversation participants to use the same language, this type of conversion software will eliminate the need for counterparties to use the same account unit in the transaction. Therefore, the motivation to coordinate the common account unit is unnecessary. Overall, the deconstruction of the monetary role reduces the need for coordination of a single currency. To this end, it allows users to obtain unique services provided by money from multiple different assets and to alleviate the need for coordination of common assets among users.

The deconstruction of money leads to increased competition between currencies. In Hayek's view, money will compete primarily as a value store, but historically, this competition has been limited due to switching costs and network externalities. There is an understanding of the currency, and the currency can be freely specialized in a certain role. Money stored as value can compete with each other, and other currencies as an exchange medium can compete separately. The reduction in friction and the externalities of the network make this level of competition at the professional level more intense than Hayek's currency.

4 Re-bundling of payment platforms and currencies

The role of the platform in the digital currency economy is very different from the deconstruction of digital networks. The platform is usually a bilateral market where buyers and sellers exchange multiple products, with a focus on network externalities and how cross-subsidies between these products affect their pricing. In contrast, this article emphasizes the role of platforms as aggregators of complementary activities. A platform is an "ecosystem" where consumers, businesses, and service providers interact. Platform-related digital payment tools will effectively combine the functions of traditional currencies with the functions and data of the platform, resulting in currency re-bundling, which is in stark contrast to the deconstruction of digital networks.

4.1 Payment platform and data

The economic logic of the platform is that they are able to develop and optimize the connections between different activities. The platform is particularly well suited for this role because they can take advantage of the key input-data of these activities. Data recorded and shared on the platform can be used to make recommendations to users, build reputation systems, or efficiently match users to each other, among other possibilities. Large commercial and social platforms, such as those operated by Amazon and Alibaba, offer a wealth of features. The use of data can produce both economies of scale and economies of scope.

Payment activities on the platform can dominate all other activities, so payments can promote the cohesiveness of the platform. All other activities on the platform depend on payment, and all data is generated by payment. Therefore, the payment function is critical to the value and growth of the platform. Consumers must adopt a platform's payment protocol to ensure access to all the services it provides. Service providers and application developers rely on powerful payment systems to ensure the continued viability of their products. Social groups benefit from a system that transfers value on the platforms that connect their members.

Most importantly, the payment network has unparalleled data access. The benefits of the database come not only from its size, but also from its diversity – understanding the habits of a million random individuals is more valuable than knowing the habits of one million people in the same city. As a result, a large payment-based platform aggregates a wide range of activities and is an ideal tool for collecting data. Given that payments are used primarily for all economic activities, no other more specialized platform is comparable to the ability of payment platforms to aggregate economic behavioral information. For example, consider a bank that evaluates loan applicants. If the bank has access to the data of the payment platform, it can track the applicant's income and payments, including data on the frequency, location and nature of the purchase. Analysis of such a wealth of data will enable banks to estimate the probability of repayment very accurately, far exceeding the accuracy of the applicant's credit score. In fact, platform-generated payment data is an ideal predictor of user preferences and behavior. Very often, on payment-based platforms, the algorithms for commodity pricing, targeted advertising, and recommended products are booming.

4.2 Re-bundling of currency

The economics of digital platforms have an important impact on currency competition. The digital currency associated with the platform will be more differentiated than the normal currency. Not only do they differ in their currency functions, but they are also differentiated from the functionality provided by their associated platforms. Money is no longer simply given to payment services, they also give access to interact with other platform users. Therefore, the digital currency is inseparable from the characteristics of the platform on which it is located.

The traditional characteristics of money, such as its ability to store value, may not have much impact in determining the success of a world in which it can deconstruct. Conversely, the attractiveness of money may be constrained by other platform characteristics, such as the platform's information processing algorithms, data privacy policies, and the set of counterparties available on the platform. Currency competition is actually a competition between information and network service bundles. This article refers to the connection of this currency with information and web services as a re-binding of money.

The re-bundling of money has an additional impact on currency competition. For normal currency, most users have a consistent preference for their basic attributes. Users want money to be widely accepted and can be used to securely store value, so network externalities are an obstacle to currency competition. On the other hand, user preferences may be more differentiated for re-bundled digital currencies. Some users may wish to absolutely guarantee privacy, while others may prefer a platform that can better use their data for smart referrals. Given that the basic currency function of digital currency can be deconstructed, network externalities are less restrictive. Therefore, the heterogeneity of this preference will motivate large issuers to differentiate their products, creating market segments that cater to different types of consumers across different platforms.

The re-bundling of money means that the characteristics of the platform associated with it will significantly affect the competitiveness of digital currencies, such as the platform's data privacy policy. There is a significant difference between countries in the importance and protection of data privacy. Chinese consumers generally lack the awareness of data privacy. Chinese companies generally despise the protection of private data and even abuse it without any scruples. Until recently, they have supervised large-scale arrests of various business models to crawl, process, process and sell Internet users. This trend has been curbed by executives of technology companies. The Chinese government has also accelerated the launch of the first draft of the “Personal Financial Information (Data) Protection Trial Measures”. Large-scale social and e-commerce platforms that have grown up in China's soils have a short-board in privacy data processing, which may affect the international competitiveness of digital currencies associated with their platforms. For example, although Tencent WeChat has 1 billion users, it has repeatedly bottomed out in international evaluations on security and privacy protection, so that after the EU launched the General Data Protection Regulation (GDPR) in May 2018, WeChat quits directly. The European market. US consumers, businesses, and governments have significantly better data privacy awareness and protection. Regulators already have broad powers. In June 2018, the most stringent data privacy law in history, the 2018 California Consumer Privacy Act, was launched. Facebook received a $5 billion fine from the US government for abusing user privacy data. As a result, its leading Libra has faced widespread and serious suspicions about privacy data policies. European Central Bank executives bluntly can't hand over public goods like money to Facebook, which has a bad record of data privacy. In Europe, since the release of the GDPR, any digital currency operating in the EU must comply with the bill, and eurozone countries have recently heated up their own central bank digital currency, which may suffer from the least questioning privacy data policy.

By the same token, platform features associated with digital currencies may also significantly enhance the competitiveness of digital currencies, such as the rich tools and content-based features provided by the platform. Tools include mobile optimization management, photography and other vertical domain tools, content categories including news, social and gaming. Compared with tool products, content products have more room for development and stronger liquidity, but barriers to entry are relatively higher. Chinese Internet companies have achieved world-renowned achievements in mobile applications, such as the byte-jumping overseas version of TikTok. As a phenomenal product of the Chinese team, it has already had nearly 500 million active users outside China. Understandably, if the internationalization of the renminbi is the priority of the People's Bank of China, one of its best strategies is to leverage China's current excellent mobile application matrix to compete with these platforms for attractive features, high quality content, efficient operations and huge The user base is bundled to gain a competitive advantage in digital currency.

5 Platform-based market structure

The economic structure centered on the digital platform will be different from the current system. The organization of the financial system and the distribution of data ownership will change. The nature of the platform may also change the competitive landscape in the economy. While platforms create connections that were previously impossible, they may tend to monopolize or split the market, so interoperability issues between platforms become critical.

5.1 Industrial organization of financial activities is inverted

The central role of payments and data on social and commercial platforms may lead to the inversion of industry organizations for current financial activities.

In modern economies, banks dominate almost all financial activities. Because of the need for funds, banks create payment instruments, so payment services are an extension of bank intermediation activities, and banks are the point of contact for all users of the payment system. Banks even extend to providing insurance and asset management services. The financial system and the way consumers store and exchange value are organized around banks and credit. The bank is at the top of the financial hierarchy, and payment is one of the many services provided by the bank, with the hierarchy below the bank.

In a platform-based economy, this hierarchy may be overthrown. Payment is at the heart of any economic platform, and all other activities will be organized around central payment functions. The consumer's point of contact is the entity that owns the platform and not the bank. Financial services such as asset management and insurance will be subject to payment services. In this new type of financial hierarchy, traditional financial institutions, such as banks, can be replaced by financial technology subsidiaries of payment systems. In China, this type of industry organization has been booming. For example, Ant Financial Group, which is based on Alipay's business, has become the world's largest unicorn company.

5.2 Data Ownership and Supervision

Large technology companies in various economies are evolving into systemically important data intermediaries. There is widespread concern that these companies have too much power over user data, so there are regulations such as the EU's GDPR. In fact, data mediation activities run through all aspects of the payment system, which deepens people's concerns.

Different currency arrangements have different effects on who controls user data. In the current system, banks, bank card organizations (such as China UnionPay and foreign VISA and MasterCard) can access the most transaction data, they can accurately record and view the time, place and manner of each transaction (in In China, telecom operators also have similar data access privileges. These data are primarily used to rate user credits to determine the rate at which lenders lend to individuals.

In a digital platform-led economy, the ownership structure of payment data can change dramatically. First, digital currency issuers may be important players in the monetary system, and bank accounts continue to interact with digital currencies in a traditional way (through existing central bank-led payment and clearing facilities). In China, Alipay Network not only issues a large number of digital currencies (ie, balance balance), but also runs applications that allow bank accounts, so Alipay and banks can access certain transaction data. As the point of contact for almost all users accessing payment services, Alipay is actually much more transactional data than a single bank can access.

A more radical direction is that large digital currency issuers use bank deposits to support their currency offerings, while consumers only hold digital currencies. This seems similar to the past environment, where consumers hold bank deposits backed by reserves rather than holding reserves directly. But the impact of data ownership is quite different. If the consumer only holds the digital currency, the digital currency issuer acts as an information oligarchy, and the bank cannot monitor the transaction data unless the former purchases it. Digital currency issuers have found that setting up a bank subsidiary is a more efficient way to monetize data. In this case, the main purpose and value of the transaction data is not only to provide credit more effectively but to monitor the tastes and tendencies of consumers. As a result, the privacy and efficiency considerations that policymakers need to weigh will be vastly different, and it may be necessary to develop regulations that limit the abuse of data. The scene described here has completely happened in China.

5.3 Impact of interoperability and convertibility on competition

The diversity of services provided by the platform has allowed them to evolve into a closed ecosystem. Consumers want to be able to use the platform's currency to purchase the variety of goods and services they need in their daily lives. For example, Ant Financial is positioning itself as a “lifestyle platform”. Most of the daily transactions of people are carried out on the order, from take-away ordering to buying movie tickets, to paying for water, electricity and gas. An ant Jinfu spokesperson said, "Our idea is that everyone lives through this platform."

Platform owners will of course want consumers to use their platform for all activities because the platform can monopolize the value of the data passing through it. However, from an economic perspective, it is best for consumers to spread their activities across multiple platforms because different platforms are specific to different activities. Platform owners are not interested in promoting interoperability with other platforms and are therefore in conflict with economic efficiency. The platform owner wants to create an "exit cost" that makes it costly for consumers to switch to other platforms' currencies or services. Chinese consumers may have observed that the cost of withdrawing money from Alipay or WeChat payment is getting higher and higher, which is to raise the “exit cost”.

Lack of interoperability can create too many barriers to cross-network trade. Therefore, the primary concern of policy makers is the impediment to interoperability, especially given that large platforms have shown reluctance to accept interoperability under certain circumstances. For example, in China, WeChat and Alipay platforms are not only interoperable or even “blocked” each other. Ant Financial and Tencent also refused to provide personal credit data to Baixing Credit Information (a market-based personal credit reporting agency initiated by the People’s Bank of China). .

The importance of digital currency convertibility is as important as platform interoperability. Networks and platforms often cause market fragmentation, but integration is critical to the effective functioning of the monetary system. In particular, payment networks should not place barriers to trade. A strict official currency convertibility system reduces these barriers. Under the convertibility arrangement, the friction to move value into or out of the digital network is minimal. New users can transfer value to the network without worrying about the stability of the online currency. When existing users need to trade with agents outside the network, they can easily transfer their held assets out of the network at a known exchange rate. In a sense, the logic of convertibility is very similar to the logic behind the optimal currency area, but in this case, the dividing line to be considered is the boundary of the digital network rather than the boundary of the geographic area. In China, although Alipay and WeChat lack interoperability, the Chinese central bank mandated that the convertibility of digital currency and legal currency issued by them would reduce barriers to trade in payment network settings.

When money is tied to other platforms and data services, effective competition between currencies can be particularly important. The convertible allows currencies to compete based on their associated set of services, rather than on the issuer's reputation. As a result, new disruptive innovators may benefit from a system of mandatory currency exchange.

Given the value of market dominance, the platform may also adopt aggressive expansion strategies that are beneficial to users in the short term, but not necessarily in the long run. The platform may attempt to expand its operations by trading with other service providers in the economy. For example, Alipay works with large chains to give discounts on its currency at the time of purchase. While these strategies may be effective in growing the network, when the platform becomes systemically important and users can no longer give up on it, the benefits to the user may eventually disappear. These developments are still in their infancy and have so far been geographically limited. However, the underlying technology supports rapid geographic expansion and the payment network has expanded to Southeast Asia.

6 Reshaping the international monetary system

The new currency will reshape the global currency landscape, creating new connections and new boundaries. Digitization may change the foundation of the international monetary system. In addition, it may lead to the rise of new international currencies. Digital currencies have the potential to reshape the economic interaction network, transcending the boundaries of the traditional Optimal Currency Areas (OCA) and setting new barriers to transactions. They also allow us to introduce a synthetic international currency. In the column of July 2019, Markus K Brunnermeier, Harold James, Jean-Pierre Landau and others proposed the subversive concept of "Digital Currency Areas" (DCAs) and discussed new ways of currency internationalization and Digital dollarization.

6.1 Digital Currency Area

In the digital world, economic interactions will take place within the boundaries of the DCA. These areas will be endogenous and may not be subject to national boundaries. A digital currency area is defined as a network that pays and trades digitally using currency specific to the network. "Specific" means that it has one or both of the following characteristics:

1. The network uses its own account unit, which is different from the existing official currency. For example, Libra is designed to represent a basket of existing French currency (and/or national debt), so it is possible to define a new account unit. Therefore, these types of DCAs are generated through full currency competition.
2. The network operates a payment instrument, an exchange medium, that can only be used between its participants. Therefore, even if the network still uses the official method currency as the account unit and supports its payment instrument, the tool cannot be used for transactions and exchanges outside the network. This is usually the case when some large electronic money issuer systems are not interoperable with other systems. China's Tencent and Ant Financial have developed such networks with hundreds of millions of users but no interconnection or interoperability. These DCAs are often examples of partial currency competition, where new currencies are not denominated in their own account units.

The economic activity of DCA may be dwarfed by the economic volume of many countries. For example, as of now, Alipay network users are close to 1 billion, and the quarterly transaction volume reached 7 trillion US dollars. Tencent, China's second largest payment provider, is close behind.

Clearly, DCA is very different from the optimal currency area (OCA) defined in Mundell's 1961 paper. The usual feature of OCA is that it is geographically close and participants use the exchange rate as an adjustment tool. This, in turn, means that the macroeconomic shocks of OCA have some commonalities and that there are sufficient elements within them (such as capital, raw materials, labor, etc.) to be liquid. OCA's design focuses on the ability of monetary authorities to smooth shocks and improve risk sharing.

In contrast, multiple DCAs are linked together by digital interconnectivity. The role of the monetary authority is not the point. In fact, the issuer of the currency may be subject to a legally binding convertibility arrangement (or multiple, when regulated by a group of jurisdictions). DCA aims to leverage the complementary activities and data connections that emerge in the digital network ecosystem. The payment function allows you to make the most of these connections. Network-based digital payment systems can form a closer link than traditional digital payment creation. Network users in DCA can use the mobile app for direct, peer-to-peer transfers.

When participants share the same form of currency, regardless of whether the currency is denominated in its own account unit, a strong currency connection is generated. Price transparency within the network is higher, price discovery is easier, and the possibility of switching to other payment instruments is less likely, sometimes technically impossible. These currency linkages further motivate the accumulation of balances denominated in the network currency. This applies regardless of whether the DCA is associated with a multi-tiered platform or a more specialized digital network such as a messaging service.

One might think that the potential for DCA cross-border expansion will lead to the emergence of global digital currencies. However, the regulatory framework may limit the scope of the DCA. Digital networks associated with DCA may process data in a completely different way, especially user privacy. Some digital payment networks may only be viable in a limited set of jurisdictions where jurisdictions such as Europe, the United States, and China use different regulatory frameworks to address privacy issues. Even Facebook, Amazon, and Alipay are still largely confined to geographic blocks. In fact, some digital currencies may not be (legally) used in some jurisdictions, but judicial authorities may also lack practical and effective means to prevent the spread of these digital currencies, such as Mu Changchun, head of the digital currency of the People’s Bank of China. Admit that the Chinese government is virtually impossible to stop Libra from spreading in China. More likely in the near future are Digital Reginal Currency Areas (DRCAs), which may eventually lead to an intensification of the division of the international monetary system.

The true global reach of DCAs requires policymakers to conduct successful cross-border coordination to ensure that private digital payment networks fully comply with key policy priorities. Although challenging, Libra and other projects have successfully promoted the Financial Stability Board to formally formulate a global stable currency regulatory policy and will submit a formal report for the G20 government finance ministers and central bank governors in July 2020, which was officially launched before Libra. time. Successful cross-border policy coordination and regulatory consensus will lay the foundation for the rise of a truly global private digital currency.

6.2 Digital dollarization

Digitization can provide a new way to internationalize existing currencies and change international monetary relations. Traditionally, money has been internationalized through international payments or as a global value reserve tool. In analyzing the current dominance of the US dollar in the international monetary system, some economists emphasize the US dollar as a reserve asset, whose role is based on the size, depth and liquidity of the US financial market, while others place more emphasis on its international trade and financial transactions. The role of pricing and settlement. Of course, a more in-depth analysis, such as Michael Hudson's book Financial Empire, shows that the global dominance of the dollar is its leading global military strength, technological strength, agriculture and food strategy, and the policies of the World Bank and the International Monetary Fund. Cooperate with (eg Washington Consensus) the combined results. This is beyond the scope of this article, and the discussion in this paper focuses on technology and financial technology.

In the digital environment, the comparison of payment instruments and reserve assets becomes relevant and important. The requirement to become a reserve asset is high and requires full and unconditional capital account convertibility. However, the theory of achieving international status through trade suggests that digital networks may be another means of currency internationalization. In international trade, merchants want to make invoices in the same currency to ensure procurement. Digital networks are particularly effective in opening up new trading opportunities and spreading exchange media outside national borders. The closure of the platform ecosystem further motivates pricing in the platform currency. Therefore, by taking advantage of the integration effect of DCA, a country with a large digital network can find new ways to gain international recognition for its currency. Therefore, digitization can be used as a powerful tool to internationalize certain currencies as a medium of exchange. Therefore, it is connected with the digital networks of large-scale social, e-commerce and content that Chinese Internet companies have established. This is a new way for the RMB to gain wider international recognition.

Other countries may face more intense currency competition through foreign currency cross-border payment networks. Existing cross-border systems are currently purely infrastructure, using domestic currency as a medium of exchange and account units. But Libra and Alipay can build private networks that give residents in many countries access to new and specific account units. If you have a strong digital network, even the official currency may gradually penetrate into the economies of other countries. Cross-border impacts can also be large. In large networks, the same digital payment tools can be easily used in multiple jurisdictions. If so, they may have the effect of facilitating the use of specific account units outside the fiat currency country.

Importantly, small economies (especially those with domestic inflation or instability) are vulnerable to traditional dollarization and digital dollarization of stable currencies, and economies that are economically or socially open to large DCAs will be particularly affected. The impact of digital dollarization is because they do not provide the same scale of network externality that large networks can provide. Even economies with stable currencies may realize digital dollarization if their citizens find themselves often trading with users of a digital platform in their own currency. As the number of services delivered in digital form increases, the way social networks exchange value with people is increasingly intertwined, and the impact of large digital currencies on smaller economies will grow.

Markus K Brunnermeier et al. pointed out that the best defense against digital dollarization may be that countries issue their own currency in digital form by creating CBDC. Although CBDC has caused fierce controversy from the perspective of monetary policy and financial stability, the more fundamental reason for advancing CBDC is to adapt its public currency to new technological forms and protect them from external competition based on digital advantages. This makes it easy to understand why the People's Bank of China has urgently launched DC/EP to resist "Libra's sovereign erosion of the renminbi."

6.3 Synthetic international currency

The prospect of digital dollarization creates the possibility that synthetic digital currencies supported by various official currencies may be internationalized. As the Bank of England Governor Mark Carney pointed out in August 2019, the dollar-based international monetary and financial system is unsustainable, and the “synthetic hegemonic currency” provided by the public sector with a network of multinational central banks’ digital currencies may be The best alternative. In recent decades, the growing international ties have created scarcity of US dollar security assets and the huge cross-border spillover effects of US monetary policy through the global financial cycle. These two forces in turn have contributed to permanent low interest rates.

Synthetic international currencies associated with several different account units can compensate for the shortage of security assets to a certain extent, as the value of debt denominated in multiple official currencies will fluctuate with the value of the synthetic currency (the fluctuations in synthetic currency may become smaller). However, no individual official currency is completely safe, which means that debt issuers denominated in synthetic currency may bear exchange rate risk if they value their assets in local currency.

If international trade is invoiced in a unit of synthetic currency, the global relevance of trade flows will also decrease. Currently, 40% of international (commodity and service) trade is denominated in US dollars, so US shocks and monetary policies have had a considerable impact on stimulating or hindering international trade. In a world that uses synthetic currency, this impact on the dollar will have a much smaller impact on trade efficiency. Of course, synthetic currency will have spillover effects from its impact on the support of the currency, but in the face of special shocks to countries, diversification may inhibit these spillover effects.

7 Competition between public and private currencies

In the world of digital currencies, policymakers will face a series of unprecedented challenges. Money will no longer be as simple as it used to be – each digital currency will be bundled with a set of data services and associated with a group of transnational economic activities. The industrial organization of the traditional financial system may change, for example, like Ant Financial, which develops other financial services subsidiaries from the payment service center. In this section, we discuss the competition between public and private currencies and the impact of introducing central bank digital currency (CBDC) in an environment that uses digital currencies.

Traditionally, an important issue in macroeconomics is how the government maintains monetary authority when challenged by the prospect of dollarization. This problem becomes more relevant when there is a possibility of digital dollarization. In the modern economy, there is basically no direct currency interaction between the government and the individual. The direct issuance of cash by the government (ie the central bank) usually only accounts for a small portion of the money supply. Most consumers hold most of the currency in the form of bank deposits. For example, in China, cash accounts for only 8% of the currency in circulation. Sweden has unlimited Close to 0%. The central bank generally exerts some influence on the public by affecting the bank's lending rate. It can change the interest rate of the interbank market by directly setting the reserve rate and discount window rate, and performing open market operations. However, the currency based on the digital network platform may change the financial level, then the role of the bank may be weakened, and the central bank will no longer be able to regulate the macro economy through existing monetary policy instruments. The disappearance of cash and the reduction of the role of banks all threaten the independence of the currency. The CBDC may be a response to these changes.

7.1 Public currency versus private currency

Digital currencies have raised new questions about private and public currency competition. Historically, one reason the government tried to regulate private money was to curb financial instability. In fact, unregulated private currencies have been a problem in modern times. The free bank in the United States has existed for less than 30 years. The only case of achieving some kind of stability is Scotland, where free banks exist for a little more than a century. But there are some scenarios in which unregulated private currencies have achieved some success, even more than the official government currency. One of the most interesting examples is the "Swiss" Dinar in Iraq, which continues to circulate in the Kurdish region of the country even after the government has denied it. Even so, this incident further proves the importance of government support. Because when the United States seems to be overthrowing Saddam Hussein and officially acknowledging the old Swiss dinars, the Swiss dinars began to add value. Encrypted currencies such as Bitcoin have once again raised the question of the success of unsupported, privately issued currencies. Although cryptocurrencies have not stabilized as value stores and are often inefficient exchange media, they are used as instrumental currencies in some international transactions (especially for escaping capital controls).

Economists often attribute the failure of unsupported private currencies to the lack of fiscal anchors. An unsupported, privately-issued currency faces a dynamic instability problem – if people believe that others will not accept it as a medium of exchange in the future, it may suddenly lose its trading value. This fundamental instability can lead to hyperinflation and the collapse of the currency. On the other hand, the government can guarantee the value of money through taxation. Governments can raise real resources through taxation and use these resources to buy (even if small) currencies, thus setting a hard cap on the (currency) price level. If the government declares its currency as legal tender, this policy excludes the possibility that inflation will always accelerate. Similarly, the government's tax power can also be used to purchase foreign exchange reserves and to resist attacks on the pegged exchange rate system. Therefore, the currency supported by the government does not have the instability problem faced by private money. The government’s willingness to accept its own currency as a payment instrument will further strengthen the public offering currency. The Fiscal Theory of the Price Level (FTPL) shows that the ability to pay taxes in a government-issued currency sets a lower limit on the value of money.

However, the reasons for the failure of unsupported private currencies in the past may not be as important today, as public currencies are often a poor substitute for digital currencies, so digital currencies may be less likely to fail. For example, cryptocurrencies can support large international transactions or evade capital controls in ways that are not possible with ordinary currency. Some privately issued currencies also allow access to smart contracts specific to a given platform. Most importantly, the owner of the platform can effectively enforce the rules, and unless the government intervenes, its currency is the only payment instrument on the platform.

Different people's understanding of "support" may be quite different, so the judgment of the support value of a currency may be very different. Traditionally, monetary support or resources from a scarce, non-renewable, limited production due to human productivity, and which have formed a consensus on human values ​​(such as gold in the gold standard era), or from credit, have penetrated or transferred through layers. After that, it may eventually reflect national credit. The supporting role of gold is temporarily not shown. Government credit as the ultimate support of the monetary system is now increasingly being questioned. On the one hand, Bitcoin fundamentalists represented by Nakamoto Satoshi firmly believe that the monetary system based on government credit is the culprit leading to the global financial crisis in 2008, which created a new era of bitcoin, and on the other hand, more mainstream economists. The views of money, debt, and the financial crisis actually echoed Nakamoto’s critique of national credit. Therefore, it is easy to judge logically or academically that national credit may not be the most ideal monetary support. Nakamoto did not agree with Bitcoin’s “unsupported” judgment. In their view, Bitcoin is also scarce, non-renewable, limited in production due to human productivity, and has formed a consensus on human values ​​(this is beyond doubt). Bitcoin has a similar support, as governments and even China recognize the characteristics of bitcoin as a tradable commodity or asset. Therefore, as long as the value of gold is recognized as a currency, it should be recognized that bitcoin has similar support.

The prospect of private money has also raised concerns about monetary policy. Monetary policy is often considered a public function, and private currency issuers will be inefficient. If private issuers are allowed to freely implement their monetary policy, they may prioritize corporate interests rather than the public interest. Similarly, the provision of emergency liquidity is often considered a basic function of the central bank. In a banking system centered on a digital network currency, certain entities may be required to provide emergency mobility directly on the network. To date, no network owner has provided emergency financing mechanisms. Therefore, it is necessary to implement interoperability and convertibility systems for private currencies. The convertibility will limit the issuer's monetary policy, and interoperability with the national currency will allow the central bank to provide emergency liquidity directly.

7.2 CBDC in a cashless society

Today, in many economies, technical feasibility can already support all payments without cash. In a society without cash, the general public cannot access public money, but instead holds bank deposits or digital currencies backed by private issuer assets. Even if these currency instruments can be exchanged for each other, people will not be able to access any bank deposits or currency anchors that the digital currency can convert (such as central bank reserves). In fact, private issuers may lose the discipline of public money, and their issuance will be influenced by other market forces, such as Hayek's envisaged private currency competition.

Without a mechanism to turn one payment instrument into another, a perfect replacement between payment instruments may not be implemented. In principle, the relative prices of different bank deposits or different online currencies can float freely. In this system, the currency will become fundamentally different – it can maintain liquidity, but its security will depend on its issuer. In fact, the performance of the monetary system will be more like the broader financial system, in which the credibility of each issuer must be constantly re-evaluated to value monetary instruments. Depending on the reliability of the issuer, payments can be divided into different categories of tools. This is very similar to the era of the US Free Bank before the Fed was established. Banks in each state issued bank notes on their own, but the market will continue to assess the liquidity of each bank to determine the discount rate for each bank note and publish it.

The CBDC will once again allow the public to directly access the public currency. Deposits and other digital currencies can be converted to CBDC. This will immediately restore the substitutability between payment instruments and keep their relative prices unchanged. Therefore, CBDC is critical to maintaining currency uniformity in the digital economy. Therefore, in an economy where money is not completely replaceable, the system that can be redeemed to CBDC will eliminate any inefficiency caused by information asymmetry. In addition, and perhaps more importantly, eliminating incompletely replaceable currencies will result in a single account unit, which, as discussed in detail later, is critical to maintaining the central bank's monetary authority.

Of course, the government can always control how to pay by forcing businesses and households to use certain payment instruments to pay taxes or make the instrument legally legal. If the government wants to promote innovation in digital payment technology, then extreme measures may not be desirable. The introduction of CBDC may restore some of the power of the monetary authority without directly regulating the new currency.

7.3 Convertibility and interoperability of digital currency and CBDC

A central bank currency used only as a medium of exchange is very susceptible to technological change. Digitization may allow for the exemption of the base currency and settlement of payments in different ways. In large digital networks, most transactions can be settled internally, bypassing the central bank. The larger the network, the smaller the need for external settlement assets. Some projects initiated by bank consortia, such as JP Morgan's JPM coins or Finality blockchain, can establish a network to circumvent traditional reserve settlements and support multiple types of payments, including cross-border payments, all using tokens. Instant completion.

However, the disappearance of central bank currency as a means of payment does not necessarily mean the loss of monetary authority. The account unit can be said to be the most important and basic function of the currency, giving the central bank the power, even if its liabilities are not used as a medium of exchange or value storage. In the modern economy, account units refer to some statutory interest-bearing liabilities of the central bank. As long as the transaction uses the account unit, the central bank will maintain its power under any circumstances. It can fix overnight interest rates on its own liabilities (such as reserves) and influence the entire set of monetary and financial parameters through arbitrage. This is true even if no central bank currency is used for payment, or if no value is stored on the central bank's balance sheet.

If digital currencies can take full advantage of the value behind connected networks, the financial system may turn around the owners of large digital platforms. Payments are not necessarily linked to bank credit supply. Perhaps the most important consequence of a digital platform-based system is that the agent begins to write contracts in account units that are specific to one platform rather than the central bank. The practice of account units is more likely to change when large technological changes eliminate the use of cash and shift economic activity to a platform with its own account units. The disappearance of central bank liabilities as an account unit will eliminate the ability of the monetary authorities to redistribute risks between borrowers and lenders, and will also undermine the link between interest rates and arbitrage mechanisms set by the central bank, which can generate credit supply through arbitrage mechanisms. Actual impact. In this case, the role of monetary policy will be severely weakened, and even the indirect link between monetary policy and consumers will be weakened.

The CBDC will open up a direct channel through which monetary policy can be transmitted to the public. It may also allow central bank account units to remain relevant in rapidly changing digital economies. As long as the public is accustomed to using central bank account units in certain situations, traditional monetary policy transmission mechanisms will remain effective in cashless economies. This impact of the CBDC does not require it to compete with other payment instruments that exist. Even if CBDC is complementary to other digital currencies, this channel will work.

Interoperability between CBDC and large digital platforms is also critical to ensuring the success of CBDC and these platforms. A publicly issued CBDC may not be attractive enough to the public as an account unit if it cannot be used on a popular platform. Therefore, interoperability may be critical to maintaining the link between the public currency and the public. From a platform perspective, interoperability may also be beneficial. If the user is allowed to use both the network currency and the digital currency issued by the public sector they hold, the user may be more likely to use the platform.

8 Case analysis

This section uses the analysis framework established in the previous section to discuss several specific digital currency cases, such as the development path of China's technology giants' digital currency, Facebook's Libra plan, RMB internationalization strategy, and Telegram's blocked currency program.

Both Ant Financial and Tencent have developed the digital currency business in the same way. The former is an example. Ant Financial took the third-party payment business and developed Alipay. Alipay supports users to use their bank deposits after they bind their bank cards, and also supports users to pay with the balance of their balance treasure (the money market fund of Ant Financial). Therefore, the balance of the balance is the digital currency issued by Ant Financial. Ant Financial Services supports the issuance of digital currency with the share of money market funds, using RMB as the account unit, and is forcibly exchangeable with bank deposits, so it is a non-independent currency. The digital currency of Ant Financial has gained great competitiveness because it is bundled with Alipay's payment service, complete e-commerce economic activities, diversified life services, and nearly 1 billion users. Alipay has developed into the largest. RMB digital currency zone. Unlike the traditional bank-centric financial hierarchy, Ant Financial has developed an industrial organization that focuses on payment business and extends financial services such as asset management, lending, and insurance. Ant Financial has in fact become an information oligarchy, monopolizing the value of data through the Alipay network, and lacking interoperability with its peer network platforms such as WeChat networks, creating barriers to cross-network transactions, forming a market fragmentation. However, the central bank’s compulsory exchange arrangements for balances and balances of bank deposits have weakened barriers to cross-network transactions. The People’s Bank of China is responsible for the online payment and settlement of non-bank payment institutions by cutting off the channels of banks and all third-party payment service providers (including Ant Financial Services) and establishing a network connection platform. Returning to the central bank, canceling the interest on the reserve and raising the reserve requirement from 20% to 100%, thus significantly weakening the privilege and profitability of their monopoly data, and effectively transferring the central bank's monetary policy to the digital currency of Alipay. The district effectively maintained the monetary authority of the central bank.

Libra is a synthetic currency based on a basket of French currency (and/or treasury bonds) assets. The weight of the basket of French currency is 50% of the US dollar, 18% of the euro, 14% of the yen, 11% of the pound and 7% of the Singapore dollar. Zhu Min, the dean of the institute, wrote that “Libra represents the right to benefit from the US dollar.” As noted earlier in this article, Libra may be denominated in US dollars or it may use its own account unit. Libra provides Libra and basket currency exchange services through its authorized distributors, but this conversion arrangement is not legally binding. So Libra is an independent currency. The Libra project aims to create a new blockchain-based financial infrastructure for the 2.8 billion users of Facebook's global social network. As a payment tool associated with the network, Libra will bundle secure, fast and convenient cross-border payment services, complete social economic activities and 2.8 billion users worldwide, which will give Libra a strong network externality and currency competitiveness. It is possible to establish a cross-global, borderless Libra digital currency zone. Facebook’s bad record of abusing user privacy data will raise Libra’s suspicions. Countries in the Libra digital currency zone that are weak in the monetary system, such as Argentina, Zimbabwe and Venezuela, may replace their currency status, resulting in the dollarization of these countries (Argentina once dollarized), which may be beneficial to the financial stability of these countries; Singapore is An export-oriented economy that is highly dependent on international trade, without the ambition of currency globalization, the Libra digital currency zone will significantly reduce the impact of spillover effects of other global dominant currencies on Singapore and reduce the global relevance of trade flows; China and the EU have huge economies Libra and its strong political power, as well as a firm demand for currency globalization, Libra will severely weaken its monetary sovereignty, so they will try to prevent the Libra digital currency zone from forming in its jurisdiction. Although Libra may be regulated by multiple jurisdictions, Libra can obtain de facto global passes as long as it is approved by US regulation, given the influence of the US dollar system. Because Libra's convertibility with basket of French currency (including US dollars) is not legally binding, USD currency policy may not be effectively transmitted to the Libra Digital Currency Zone. In order to maintain the monetary authority of the US dollar, the author is cautiously expecting a certain probability that Libra will use the US dollar instead of its own unique account unit.

Digitalization can provide a new way for the internationalization of the RMB. The development of digital money in China's technology giants and the successful experience of mobile applications will play a key role. The Chinese technology giants, represented by Ant Financial and Tencent, have built a renminbi digital currency zone based on their e-commerce and social networking platforms that has shaped a large number of economies across a certain geographic area and nearly 1 billion Internet users. However, the territory is mainly in China and around. The overseas version of Tietok has nearly 500 million active users outside of China, and it has greater potential to form a truly global RMB digital currency zone. Therefore, leveraging China's current best social, e-commerce and content platform matrix collectively, digital currency and these platforms are very attractive features, high-quality content, effective operations, rich and complete economic activity ecology and 10 The billions of user bases are bundled to gain a competitive advantage in digital currency. But Chinese companies need to be cautious about issues related to privacy data policies and avoid weakening the competitive advantage of digital currencies. The digital currency areas formed by multiple network platforms are connected by digital interconnection to form the “ultimate” RMB digital currency zone. The digital currency of these platforms is compulsory with the People's Bank of China DC/EP, so the central bank's monetary policy can be effectively transmitted to each digital currency zone. The interoperability of these platforms with DC/EP will allow the central bank to maintain finance in the global RMB digital currency zone. stability. From the perspective of China, the central bank's accelerated launch of DC/EP is a good strategy for dealing with the competitive advantages of Libra with digital advantages.

On October 11, 2019, the US SEC called Telegram a $1.7 billion currency program. The program intends to issue 2.9 billion Grams tokens for the shopping and consumption of the Telegram ecosystem. As a network platform, Telegram already has 200 million active users in the first half of 2018, and the Telegram platform provides data processing, network communication, privacy policy and a large, active and loyal customer base that is extremely strong for all participants in the platform. Attractive. The Telegram platform demonstrates strong network externalities, such as its ecosystem that has developed rich, non-Telegram-led economic activities such as precision advertising and the social economy associated with cryptocurrencies (or “amaranth economy”). Although Grams is not supported, it is bundled with the services provided by the Telegram network platform and is expected to be extremely competitive. Grams uses its own account unit and does not support convertibility and interoperability with any legal currency. It is a separate currency. Taking into account Telegram's strong network externalities and the use of independent account units, it will form a cross-global, borderless, massive digital currency zone, without any monetary authority transmitting its monetary policy and monetary authority to the digital currency zone. Inside. Such new things, as long as they are still concerned about the authority of their currency, will be killed in the cradle.

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