Author: Qian Ning (Chinese Academy of Social Economic Research Institute)
Source: China Finance Journal
Editor's Note: The original title was "The Nature of Money and the Analysis of Digital Currency"
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British currency economist Lawrence Harris states:
"Money is a social phenomenon … different types of money exist in different social and economic structures."
German philosopher Simmel elaborately explained the role of money from the perspective of monetary philosophy. He believed that the general equivalent of money transformed the complex relationship between things in society into a value relationship, and got rid of the path dependence of various subject and object relationships, greatly increasing Social activity. The general equivalence of currency, the abrasion resistance of metal currency, and the mismatch of the economic individual's budget make the currency have a value storage function and become a necessary configuration in the economic individual's asset portfolio. The limitation of the natural currency carrier determines that the currency must develop in a direction away from the carrier. It is an inevitable development process that cheap commodities such as paper money replace valuable commodities such as gold and silver as currency carriers.
With the advent of the electronic age, electronic money, that is, account numbers, has become currency directly, and the currency carrier has finally changed from tangible to intangible, and finally has its original appearance as a virtual commodity. Once the currency virtualization has reached a consensus, maintaining this consensus and chasing currency interests will inevitably reflect the political game. From the political class and even the state machine to monopolize currency issuance and regulate the money supply become the inevitable development of currency history. This pattern implies the entanglement of political interests with economic development and therefore brings many disadvantages. The exploration of digital currency in recent years seems to have brought some new thinking and practice to the reform of the currency system, but this exploration still has a long way to go.
The nature and social attributes of money
The nature of currency includes two aspects: economic and political attributes, reflecting the development path from non-governmental to government, from decentralized to centralized, and from competition to monopoly.
- Economic attributes of money
From the economic perspective of money, it reflects the process from exchange to storage, and then from savings (personal time mismatch) to credit (group space-time allocation). Using the theoretical framework of currency portfolios, the hierarchical relationship of currency functions can be analyzed.
First of all, currency as the medium of exchange, the basis for clearing, asset allocation and credit carrier, its stock represents the asset properties of currency, based on the asset composition of economic entities (toward the best equilibrium with no difference in marginal effects, liquidity must be added or subtracted in asset utility (Premium), if the marginal utility of the currency is relatively low, there is an impulse to trade into other assets, forming the trading motivation potential. At the same time, currency flows represent the nature of currency transactions, and the total amount of potential transactions reflects the desire to reconfigure the assets of individual economic entities, and represents the degree of activity of such reconfiguration. The above is based on the analysis of the original monetary economy. The measure is the total amount of goods and services transactions, and the characterization of the currency is its payment function.
Secondly, after social credit is generated, economic individuals use assets to restructure their assets through currency, plus debt and utility for intertemporal allocation. In this case, the money stock is unchanged, but the ownership and individual asset-liability structures are changing. The flow reflects the scale and speed of credit allocation. The above is based on the analysis of the credit currency economy. The measurement index is the total social credit (minus equity financing) for the current period. The characterization of currency plus the borrowing function.
Once again, after the currency creation function of a commercial bank or a similar central bank is created, the assets of the entire population (the sum of all economic entities, including the public sector) have achieved a total intertemporal allocation. The “out of nothing” currency represents the current virtual assets and Future outstanding liabilities. When currency as an asset allocation exists in the balance sheet of an economic entity, the newly created currency stock is equivalent to the current debt of the national assets to the future, and the short-term performance is inter-period repayment, which impacts individual asset allocation and generates transactions. Long-term performance is inflation after complex reconfiguration of asset allocation. The above is an analysis based on the economy of virtual currency (the excessively created part of fiat currency). The measurement index is the total supply of money, and the "redundant" function is added to the characterization of money.
Commodity currencies and even coinage years, the money supply was constrained by production and technology, and there was great volatility. The volatility of the fiat currency era largely comes from government spending fluctuations and political demands for illusory prosperity. According to modern monetary theory, multi-sector economic analysis shows the misaligned correspondence between "asset side" and "liability side" in the balance sheet. One liability forms one asset. What changes is the relationship of financial allocation, and the corresponding expansion and contraction of the respective statements. . However, from a financial perspective, if the central bank exceeds the holding of government bonds by actively expanding the balance sheet (non-market transactions), an excessive fiscal deficit will be formed (the creditors of the deficit can be regarded as the national current savings), from the perspective of the national balance sheet Look, it is an overdraft of the future of the country and the people. The era of fiat currency under the interpretation of modern currency theory reflects the unity of the roots of currency and finance.
- The political nature of money
From the perspective of currency politics, currency development reflects the process from tribal commodity currency to feudal official coinage, then from the fiat currency of paper money to the monopoly of the central bank's money supply, and finally the unification of finance and currency. The internal jurisprudence of sovereign currency determines the ultimate unification of currency and finance, that is, the support and preparation of public property and tax flows for currency issuance and the profit and loss of the central bank are ultimately attributed to finance. Monetary policy objectives are inherently consistent with macroeconomic objectives, including full employment and economic development. From a benign perspective, the improvement of currency's credibility and currency efficiency (single consensus and credit transactions) has improved economic efficiency. From a vicious perspective, the infinite supply of modern monetary theory, the inexhaustible financing of government expenditures, and the political and economic appeals of economic prosperity easily lead to conspiracy and thus the risk of economic and financial fluctuations.
The three economic representations of money are all closely related to sovereign politics. First, the currency payment function is the "lubricant" for goods and services transactions, and it is an effective intermediary for asset allocation by economic entities. Market stability, currency smoothness, and currency stability depend on the effective operation of government public service management. Second, the function of currency credit requires a good and stable social space, business environment and a culture of integrity. A stable and friendly society is the foundation of credit. Clear sovereign politics and stable economic order are the necessary support for the development of monetary credit. Thirdly, the "redundant" function of currency reflects the rationality of government governance and government credit. Appropriate fiscal deficits and low interest rates on government bonds are routine considerations of fiscal policy, and are important tools for the government to conduct macroeconomic regulation and smooth economic fluctuations.
Analysis and Critique of the Principles of Digital Currency
The digital currency reform aims to create ideal transaction intermediaries and stable asset substitutes, improve the money supply mechanism and price stability mechanism, to avoid the cyclical impact of inflation and deflation, and stabilize economic expectations, thereby improving the privacy and security of transactions. Sex. Based on this original intention, various forms of digital currency concepts combined with vigorous modern digital technology are intended to break through the economic organization model, social division of labor structure, and industrial organization boundaries, and create a new model of currency existence and operation. At the same time, the possible resonance between digital currency and digital economy and fintech may affect the entire economic environment, financial markets including payment clearing systems, credit creation systems, financial supervision and other core infrastructure construction. This requires new thinking from theory to practice.
Libra is a cryptocurrency that was recently launched by a commercial organization and managed by a non-profit organization. Its issuance is guaranteed by real asset reserves and anchored by a basket of national currencies, with the intention of achieving the controllable and stable currency issuance and the convenience of cross-border transactions. This mechanism is also inextricable from the question of monetary economics: the emergence of Libra will inevitably entice various commercial institutions to create similar currencies. How to avoid the vicious competition of digital currencies and the out of control of supply? How can Libra's own payroll and currency multiplier problems be solved? How does Libra's gradual expansion guarantee the corresponding amount of real asset reserves? How does Libra handle the relationship with the national fiat currency? How to avoid interference and impact on the legal currency supply mechanism? How does cross-border circulation coordinate capital control, regulatory arbitrage, and anti-money laundering mechanisms in many countries? All these problems are in serious conflict with the political economy of sovereign states, and it seems that no effective solution has been seen yet.
The Special Drawing Right (SDR) originates from the monetary unit arrangement of the IMF reserve replenishment mechanism. Based on the SDR framework design, eSDR is an upgraded digital version of SDR. eSDR is conceived to rely on blockchain technology and a decentralized currency issuance mechanism, anchor the global economic growth rate and inflation level, and use scientific and technological means such as program algorithms to rely on node and terminal origination and operation. At the same time, through international cooperative contracts, a set of effective rules will be formulated to constrain the supply of eSDRs and achieve a consensus on cross-border currency credit. Participants such as central banks, financial institutions, enterprises and residents of various countries will jointly maintain the stability and sustainability of the system. However, eSDR does not clearly explain the currency issuer or the bearer system. If the entity continues the IMF management structure, the relationship between eSDR and various sovereign currencies is still not resolved. Once the issuance and expansion enters the private commercial payment and capital flow system, the conflict between eSDR and the local currency and the contradiction with the monetary policies of various countries are inevitable. From parallel conflicts to substitution challenges, the game of interests among nations will inevitably make this international digital currency a bumpy road with many crises.
Therefore, from the current point of view, the concept of various super-sovereign digital currencies has not yet succeeded in breaking through the political constraints and creating appropriate mechanisms to effectively "beyond" sovereignty.
The current sovereign digital currencies are the UK's Rscoin model and China's DCEP model. The idea is for sovereign countries to design digital currencies themselves, to replace and develop existing banknotes and electronic account currencies, with the intention of sublimating their own fiat currency system, in order to enhance currency stability, financial efficiency and monetary policy functions.
The digital currency Rscoin discussed by the Bank of England and the digital currency DCEP proposed by the People's Bank of China both adopt a two-tiered model. This sovereign digital currency is a digital payment tool with price characteristics. Its functions and attributes are exactly the same as those of paper money. , Designed to achieve the replacement of the cash portion of M0 (including the auxiliary currency). The digital currency of the central bank belongs to fiat currency, which is also infinitely compensable.
The digital currency substitution effect of cash mainly includes three aspects: digital records of real-time transactions, effective monitoring of criminal transactions and money laundering; after the full replacement of cash, the central bank can implement a completely negative interest rate monetary policy through the digital system, making monetary policy break through ZLB ( Zero interest rate lower limit); can naturally prevent the natural loss of coins or cash. In order not to disturb monetary policy and macro-prudential management, the central bank's digital currency has adopted a two-tier operation system, and does not change the operation mechanism of commercial banks' credit intermediaries. The central bank's digital currency design has not yet involved M0 other than cash, so It will not have much impact on the monetary transmission mechanism and monetary policy regulation.
If the advancement of digital technology can meet the needs of currency flow and settlement, the central bank's currency issuance will be fully digitized, and digital currency records such as blockchain will be adopted, and the money supply will be completely exogenous. Commercial banks will only perform credit allocation and will no longer have derivation and multiplier effects In fact, the 100% reserve system envisioned by Friedman's "Currency Stability Plan" that year also marked the return of the "Monetary School" in the early 19th century. In this way, the current bank's electronic account system and monetary policy tools will inevitably require corresponding changes.
Prospect of Monetary Theory and Practice
Although digital currencies have challenged the traditional currency system, from the perspective of several current ideas, the differences in their views are basically caused by the conflicts between centralization and decentralization, private competition and government monopoly. The super-sovereign digital currency decentralized model and the commercial token model attempt to overcome the disadvantages of the traditional currency system with technical power, but ignore the nature of the currency, confuse the relationship between "payment security" and "issue credit", and blur the "currency" and " The concept of "assets" does not clearly clarify the mechanism of "currency issuance" and "credit creation" in the theory of monetary economics. As everyone knows, the nature of money has surpassed the simple payment function, becoming the main component of economic individual asset allocation, and it has become an important means of social credit relations and economic capitalization. The nature of money has transcended economic attributes, embodies stronger political attributes, and has also determined that it is difficult for currencies to surpass the scope of sovereignty and politics. At present, various super-sovereign digital currency ideas still remain in the "utopia" of technology. The obstacles to the modern currency revolution are not economics and technology, but politics. It is difficult to reach consensus between sovereignty and synergy of interests. After the birth of the euro, the imbalance in the economic competitiveness of the euro area and the failure of the fiscal policy constraint mechanisms of various countries fully illustrate this point. Because of the interest, currency sovereignty is an important part of national sovereignty declaration. Except for some colonial traditional countries and some countries that adopt the currency or currency bureau system of other countries (based on some special state relations), most countries have declared their currency sovereignty seriously. , And incorporate monetary and exchange rate policies into government macroeconomic control tools.
The ideal "absolute currency" in the future may be a price benchmark unit. Based on efficient big data collection and strong computing power, it is weighted by the relative prices of all goods and services (or a sufficiently large sample library) worldwide for a period of time. The index is expressed for the base period, and all products are quoted accordingly, and the index is adjusted by rolling. This quotation method based on relative prices can completely avoid the threat of inflation. The real balance of the currency is absolutely unchanged, and it only forms a structural relative change with the price of goods and services. In this way, currency is a general substitute for goods and services or assets in the true sense, and it can become a real stable currency. The technical difficulty is unknown, but we must first break through political obstacles to form an international consensus, and carry out strict coordination and restrictions through corresponding mechanisms. But even if consensus is reached, there are still great unknowns and challenges in the shape and mechanism of currency. In particular, whether the currency needs reserves, how to set up a payment and settlement mechanism, how to constrain the credit scale, whether the logic of monetary policy has changed, and how to set macroeconomic goals after exempting price stability, etc., all-round exploration is needed. The central bank digital currency research model and logic currently being carried out by governments are clearly far from the subversive design of supersovereign currencies. It is only a technical attempt to digitize cash management and cross-border payments. The system has been improved, and the framework for currency issuance and policy regulation has remained basically unchanged.
From the current digital currency boom, it can be seen that the understanding of the nature of currency, the understanding of the history of currency, the conception of the currency system, and the understanding of digital technology have huge differences from the official to the private. Innovative creative ideas. However, there is still a long way to go to understand and explore the nature of money, and to design and reform the currency system.