Zhu Jiaming's latest thinking on digital currencies: traditional loose monetary stimulus policies are fully ineffective

Source: Headline

On March 27, Zhu Jiaming, a well-known economist and director of the Academic and Technical Committee of the Digital Asset Research Institute, pointed out at the online closed-door seminar on "The Impact and Prospect of Digital Currency on Macroeconomics" that digital currency has become an indispensable factor in understanding modern economy A factor of exclusion.

Now, although the scale of digital currency is limited, it is still in the early development stage. However, with the generation, development and expansion of digital currency, it has interfered, and even changed, including interest rates, savings and investment, the relationship between currency liquidity preferences and money supply. The past logic will gradually and rapidly erode the model base of aggregate demand and aggregate supply, resulting in the failure of traditional monetary policy.

The following is the full text of the speech:

Hello everyone, thank you friends and attendees. My topic today is "Thoughts on the Impact of Digital Currency on Macroeconomics." I hope to discuss with you the impact of digital currency on macroeconomics. What issues need attention and reflection?

A new combination of macroeconomics caused by digital currencies

First of all, because of the emergence and development of digital currency and digital economy, the monetary economy and the macroeconomic structure have changed. Because of the digital currency, the monetary system has undergone structural changes, and there has been a classification of traditional currencies and digital currencies; because of the digital economy, the macroeconomic structure has also undergone structural changes, and there has been a classification of the traditional economy and the digital economy. As a result, the combination of the monetary economy and the macro economy has formed an unprecedented recombination with the macro economy.

A picture is drawn here, divided into four types, one is digital currency and digital economy, the other is digital currency and traditional economy, the third is traditional currency and digital economy, and the fourth is traditional currency and traditional economy.

It should be noted that when we discuss the role and influence of digital currencies in macroeconomics, we still basically maintain the "dichotomy" in traditional economic theory, or in fact, the dichotomy is implicitly explained. The relationship between monetary economy and macro economy. According to the so-called "dichotomy", the monetary economy and the real economy are different economic categories. The only way to separate the two is to discuss the monetary economy and the real economy and the relationship between the two.

Now, there is no need to touch on controversial issues such as how to define digital currency, digital currency composition, and digital currency regulation. However, this does not prevent the idea being emphasized here: no matter how small it is, how weak its current impact is, but as long as the digital currency becomes a fait accompli, its full impact on the macro economy has already begun, and has led to The monetary economic system and even the macroeconomic structure have undergone "deconstruction" and "construction", forming a new combination model described earlier.

This process is very much like a chemical reaction. According to the usual chemical reaction explanation: When a new element comes in, it will erode and affect the entire system. The original molecule is broken into atoms, and the process of atom rearrangement and combination to form a new substance is a chemical reaction process. Digital currency has caused the “split” of the traditional monetary economy, or the “alienation” of the traditional monetary system. Therefore, the traditional macroeconomic structure has changed. The “this” monetary system and this macroeconomic structure are no longer the “other” monetary system and this Macroeconomic structure. Therefore, unlike before the birth of Bitcoin in 2008, when discussing the monetary economy, the role of digital currency cannot be excluded. Similarly, when discussing the real or real economy, the existence of the digital economy cannot be ignored. We need to add "chemical consciousness", "mixed consciousness" and "cross-consciousness" to understand the relationship between the digital economy and the macroeconomics.

Second, digital currency changes the monetary economic system

Now we have some in-depth discussions on how digital currencies can change the monetary economic system, and emphasize the following points:

First, the comparative advantages of digital currencies and traditional currencies. (1) Diversification of issuing rights. The issuance of fiat currency is based on its authority. Digital currency does not pursue authority, so it is diverse. (2) Incredibly low cost. When everyone can create digital currency based on the blockchain, its cost is of course very low. (3) Digital currency goes beyond sovereignty. (4) Technology-driven. The evolution of traditional currency is linked to human civilization and economy, and is a historical model. Therefore, there is a classic saying that currency is the sum of social relations. Digital currency is the result of the comprehensive development of science and technology, and it is the only currency created and promoted by science and technology in human history. (5) The market value, type and regional expansion of digital currencies. (6) Digital currency circulation speed.

Second, digital currencies are driving the era of zero and negative interest rates. Because of the emergence of digital currencies, capital will no longer be scarce in the future, and the capital in the classic sense may be dying. The government's public investment, public consumption and public goods will increase significantly. The reason is simple. The disappearance of capital is because the cost of monetary resources that could have become capital goes to zero. After digital currencies are added, the supply is theoretically infinite. In theory, it can even be argued that because of the combination of money demand and digital currency, the function of interest rates will no longer exist.

Third, digital currencies naturally transcend the so-called "liquidity trap." As far as folk digital currencies are concerned, their functions are simpler and more diverse than traditional currencies, and they are difficult to link with the "interest rates" of traditional currencies. Therefore, there is almost no elastic demand for any single digital currency or the infinite demand for digital currencies . In terms of fiat currency digital currency, compared with traditional currency, it has natural transparency and it is difficult to convert it into "speculative" currency demand.

Fourth, digital currencies eventually caused IS and LM models to fail. In a huge economic system, there are countless models. However, the IS and LM models are undoubtedly the most profound and practical. Hicks, a British economist, proposed the IS-LL model based on Keynesian economics in 1938, which geniusly connected the monetary economy with the real economy. In 1949, the American economist Hanson changed Hicks' IS-LL model into an IS-LM model. IS talks about the relationship between savings and investment, and LM talks about the relationship between currency preference and money supply. Both IS and LM are ultimately subject to restrictions and interest rates. Today, more than eighty years have passed since 1938 and more than seventy years have passed since 1949. No matter the monetary economy, the real economy, or the relationship between them has been greatly different. In particular, the past logical relationship between interest rates and investment, and currency preferences and money supply has been completely disrupted. The penetration of digital currencies into the traditional monetary system and the macro economy has accelerated the failure of IS and LM models.

John R. Hicks (1904-1989) on the left; Alvin Hansen (1887-1975) on the right