Rethinking Zhu Jiaming's Speech: Two Levels of "Monetary Financial Hegemony"

On August 20th, Prof. Zhu Jiaming, the well-known economist and president of the Institute of Digital Assets, delivered a keynote speech entitled “The 2020s: A Key Decade for the Transformation of the Global Monetary System” (click to view the full text of the speech) .

Professor Zhu Jiaming pointed out that the most important choice in the 2020s is institutional + technological innovation, including the sharing economy, the green economy, the cooperative economy, and social enterprises. The goal of the monetary economy in the 2020s was inclusive finance. Regarding the status quo of the monetary economy, the four points that need to be emphasized are: the monetary and financial hegemony and monopoly are coming to an end, the monetary and financial science and technology revolution is maturing, the uneven distribution of monetary and financial resources tends to be equal, and the monetary and financial system is diversified.

The following is the author of this article, Long Baizhen, rethinking Professor Zhu Jiaming's speech:

(Author: Long Baiyi, Bachelor of Computer Science, Master and Ph.D., Tsinghua University. Independent researcher in blockchain technology and monetary and financial theory, studied by famous economist Zhu Jiaming. One of the first Libra authors in China. Continuous entrepreneurs He founded Zhixiang Technology, which focuses on financial cloud computing, quantitative investment, and machine learning. He obtained 27.5 million yuan investment from Qifu Capital; he served as chief technology officer of Zhongjin Jiazi Investment Fund; and served as the general manager of Wanxiang Holdings. Co-founder and Chief Strategy Officer; previously a senior executive in the financial services field at Accenture Consulting and IBM Global Consulting Services, representing Accenture as the chief architect of the new generation trading system project at the Shanghai Stock Exchange.)

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Teacher Zhu’s “Monetary and financial hegemony and monopoly are coming to an end”, what is currency hegemony? How is the current currency hegemony formed? What method is used to end currency hegemony?

I think we can understand "money financial hegemony" from at least two levels.

The first is the super-sovereign monetary and financial level. The only thing that can be called "financial hegemony" at this level is the US dollar. The pound, the euro and the yen are only known as the "satellite" currency of the US dollar. The renminbi is still not a climate. . How is the dollar hegemony formed? The US balance of payments deficit. The US government has magically turned its debtor status into a tool for levying global taxes, in line with the formation of dollar hegemony, the policies of relevant international financial institutions (International Monetary Fund and the World Bank), and the US domestic protective trade policy ( For example, for agriculture, the United States, global military power, leading technology and other systems and strengths. So we can see that there is only one goal that needs to be subverted at this level, but the formation of dollar hegemony has historical opportunities, political systems, economic and military strengths. At this level, "ending the dollar hegemony" I think the task is extremely difficult. Bitcoin's attempts to the present have not been successful even as a common currency. The super-sovereign currency represented by Libra will become an assistant to the internationalization of the US dollar and will not be a big task.

I think that this level of elimination of monetary and financial hegemony may be effective in "supporting the renminbi as the other pole of the world currency." If there is no ability to end or replace a goal, then the more appropriate strategy is to make its nearest competitor become its evenly rival. Some may ask, will the renminbi also learn the mechanism of dollar hegemony and use the renminbi output as a tool for the second global tax? Even if there is the possibility of renminbi hegemony, the form of expression and the formation mechanism will certainly be different. The biggest problem or "advantage" of the renminbi is not a huge balance of payments deficit, but a huge surplus. This surplus is mostly in the form of dollar treasury bonds, and China’s defensive military strength rather than the US expansion. Sexual military strength, China's technology and the United States also have a large gap, the renminbi does not have the financial, economic, military and technological conditions required for the formation and consolidation of dollar hegemony. The deeper reason why the renminbi is unlikely to form currency hegemony may come from Chinese Confucian cultural values, cohesion rather than expansion, harmony rather than competition, and win-win rather than win-win.

The second level is the sovereign monetary and financial level. At this level, almost all sovereign currencies may be the object of subversion. Since we speak Chinese, we take the renminbi as an example, so that readers will not be criticized for me. "The bottom line is the tribute to the renminbi." As the level of sovereign currency, the most intuitive feeling of ordinary people on "hegemony" should come from the "super-issuance" of the renminbi, which leads to the depreciation of the currency and assets held by them. Another more concealed "hegemony" actually comes from the distribution of the coinage tax. The most important issuance mechanism of the RMB is based on the US dollar foreign exchange quota—that is, the US dollar income obtained by Chinese foreign trade enterprises for export is forcibly handed over to the People’s Bank for exchange into RMB for domestic circulation. The Chinese foreign exchange administration has returned most of the US dollars it has received to the United States to purchase US dollar bonds, and part of it for global investment (through SAFE and CIC). The Chinese foreign exchange administration holds US dollar bonds every year, or makes global investments. Of course, there are gains, but the specific figures have never been disclosed. We take the Hong Kong Gold and Exchange Bureau as a comparison. The average annual rate of return of the Hong Kong Gold Exchange's foreign exchange management fund in the past three years is close to 2%. We assume that the level of China's foreign exchange management is close to that of Hong Kong, which is calculated to be 2%. China's current foreign exchange reserves, the number of last month, 3.1 trillion US dollars, then we reasonably assume that China's foreign exchange management revenue last year was 62 billion US dollars, close to 400 billion yuan. What is this 400 billion yuan? The operating profit of the renminbi, or the central bank's coinage tax (excluding the commercial bank level). The Chinese people contributed the reserves of the RMB, the US dollar, but the income of the monetary system could not be shared by one share.

This is the "financial hegemony" that I understand the largest sovereign currency level. Let's talk about "super-sending". The people don't understand economic and financial principles. Seeing that currency is over-represented will only complain about government/banks printing money, but in many cases the issuance of the renminbi may be forced to synchronize with the US dollar monetary policy (such as the US dollar). Global water release, China passively obtained more dollars), or the need to curb deflation to stimulate consumption and increase spending. Therefore, these problems of the domestic currency are essentially the manifestation of the invalidity of monetary policy. Rather than the imaginary “a certain interest group”, the wealth of the people is harvested through the currency. Another pain of the common people is that the cost of using funds is too high. For example, the current policy rate of the People's Bank of China is close to 2.5%, but in fact only a few companies can get 5% of the funds from the bank, and the cost of capital for most enterprises or households is 10 %the above. So what is the solution to these phenomena?

1. Decoupling the renminbi from the US dollar and eliminating the reliance of the renminbi on the US dollar monetary policy and business cycle;
2. Give the central bank a stronger ability to create and supply money, make monetary policy more effective, and more effectively correspond to the business cycle;
3. Central bank interest rates are more market-oriented;
4. Allowing non-official institutions to issue rivet renminbi renminbi, the civilian Libra, can reduce the cost of capital use and a more equitable distribution of the levy tax.

Therefore, there are two solutions to the monetary hegemony of the sovereign currency. The first is of course the central bank digital currency, and the second is the civil Libra, which can change the distribution mechanism of the coinage tax and make the distribution of the coinage tax more fair and reasonable.

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