Editor's Note: This article comes fromDigital Asset Research Institute CIDA (ID: gh_cbfb4ac358dc)Editor's Note: This article comes from
Digital Asset Research Institute CIDA (ID: gh_cbfb4ac358dc)
, Author: Shao Yu, released with authorization.
This article is a speech by Mr. Shao Yu in the keynote speech of the "Digital Finance: Trends and Challenges" sub-forum of the New Moganshan Conference in Autumn 2019.
We are very familiar with the original commodity, either commodity currency gold, silver, legal currency (sovereign currency), if the new digital currency is just Bitcoin, based on the algorithm, its total amount is limited, no problem. But if Libra or the central bank's sovereign currency is issued, this matter will be different.
The question is whether it is a truly brand-new algorithm-based or trust-based consensus, or is it based on the accumulation of tangible traditions, which is just an upgrade, which is a completely different path. So how to distinguish the difference here?
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Shao Yu | Chief Economist of Orient Securities
First of all, we must admit that because of the current state, the mainstream of future currency must be digital currency, but we are not sure whether it is the sovereignty of the central bank, or Libra commercial, or all open source or all decentralized, more like the original private currency .
In fact, the speed of this evolution is not very fast, and the blockchain is only ten years old. There are many problems in the past. Frankly speaking, if it is non-sovereign gold and silver, Libra is also the same, but the derivative system they are based on is different. Same. I will talk about it later that Libra is a compromise. It must obtain the consent of existing stakeholders before it can develop to a higher level, but one day it will break away from its parent body, and digital currency must develop like this.
The basis of each different currency has different theories, and only theories can support the development of the entire economy. For example, when it comes to gold and silver, it is very simple. A simple quantity theory of money, coupled with the so-called gold transportation point, we can fix both the exchange rate and the interest rate. But the variation of the problem is that it completely mutates from credit currency or sovereign currency. The impact of this mutation is too great, and we have no way to control it now, or completely out of control.
We know that credit currency has a dual structure. In theory, high-powered currency is determined by the central bank, the currency controller, but broad currency is based on animal spirits. How to create it? M2 is actually all endogenous. Once there is a crisis, everyone knows that the central bank will definitely step forward, because at that time the animal spirits in the entire market are completely scared away, and you can only follow the Keynesian path, which is still the case now.
Going down, we see that in the case of sovereign credit currencies all over the world, what do we see more? It is the illusion of currency, asset bubbles, Ponzi schemes, and even national bankruptcy, but this Ponzi may be played by sovereign economies.
The current state of debt accumulation, and the way to save the crisis in the past ten years, is ridiculous. The past crisis was caused by putting too much money before 2008, and the way to save the crisis is to release more money, everyone knows Now that the entire economy is about to enter a new round of recession, what is the only action everyone is taking? RRR cuts and interest rates, continue to release water. Do you know what is crazy? That is, you keep doing one thing repeatedly, but expect different results. We are continuing to work in this direction.
Even our theory has been updated, what update? Researchers are often servants of power. They invented MMT. With MMT, everyone knows that there will be no bottom line. As long as there is no inflation, as long as the Chinese continue to provide production capacity for the world, there is no limit to printing money.
There is a big problem here. This is because the basis of our entire credit theory is that debt and currency are of the same origin. Because credit creates debt, the result it produces is either inflation. This is in Germany. The situation encountered in 1923 was due to insufficient production capacity. The second is the bursting of the bubble. Of course, this will continue to appear, as well as the bankruptcy of the country. Unless you are a sovereign currency, that is, the sovereign currency of the global reserve, like the United States, everyone knows the current debt of the United States. Why is there no problem? Because he can choose, you can't choose universe currency, the United States is the biggest and last credit.
First look at our current problem. Frankly speaking, we are based on a very wrong identity, which is such a famous identity. Everyone is saying that in a credit economy, broad money M2=GDP+CPI+asset CPI, this is a classic fallacy.
A very simple reason, we feel that most of M2 should be digested by our GDP+CPI, that is, the nominal output, and most of the rest will enter the field of asset bubbles. Let’s look at our samples of China in the past 30 years. The blue line represents our ability to create wealth (nominal GDP), and the red line represents M2, which is the ability to create money. The GDP here, we roughly think it may enter the bubble area, no, because looking at it this way, there are only An additional 5% of the money supply will go into the bubble area, because evidence shows that 10% of M2 goes into the creation of GDP, 10% goes into CPI, and 80% goes into asset prices. This is a major fallacy.
As you can imagine, when the nominal GDP growth was around 8.5 last quarter, and our M2 value becomes 8, various financial chaos will appear, including running away. The reason for running away is not from the central bank digital currency, but in the rapid tightening of liquidity. The first reaction you see is the reaction of the financial market and the deflation of the bubble, and the real economy is of course collateral damage.
So we are trapped in such a wrong credit economic model or formula, and more importantly, we are living in a huge currency illusion, which of course comes from the credit system or the speed of its own expansion, in the past 40 years Inside, our economy has expanded 240 times, which is amazing. This is a miracle in China. What everyone wears and uses, we have created 240 times the material wealth, and we have invested 1,500 times the currency. This is the dilemma encountered by our credit currency. Not only in China, but all over the world.
Why is the so-called neutrality of monetary theory wrong at the beginning, because it is absolutely impossible to be neutral. In the short term, it is not neutral in the long run. So where is the basis of macroeconomics? There is no more, and there is no way to judge who can get the most wealth here, which will definitely cause division, but will the technical elite or technology bring a better world? We have to be very careful in answering this.
Regarding the classification of digital currency, we put forward our point of view, which is the so-called Libra. In fact, everyone is not particularly worried about Bitcoin because of its total amount. But Libra is different. If the central bank is so unreliable, will companies be more reliable? Enterprises will pretend to be more reliable, based on what? Based on SDR, also known as ESDR, is distributed technology used? It will be used. It emphasizes that it will be handed over for use in five years. Now it is actually based on its own network, its own users, plus 100 big players, and now there are 24 big players, forming an alliance chain. , but its compromise with reality lies in the fact that real assets are used as collateral for 1:1 issuance. My understanding is that it defines the language of Move and keeps moving such asset packages, but this movement may bring The advantage is that it is difficult to have many loopholes, such as disappearing out of thin air or being attacked. Of course, this depends on how wonderful the language written by the 26-year-old programmer is. Of course, I am not a technical expert. This is my simple understanding. .
But is the ESDR based on multiple currencies issued by 100 companies more reliable than the SDR issued by several major countries? Everyone knows that SDR is basically finished, except that it is useful to use the liquidation between the top countries, but later found that it is useless, because when the crisis comes, everyone simply abandons SDR and directly exchanges powerful currencies. The dollar is over. After doing the swap, the Chinese renminbi is also doing the swap.
If Libra is successful, this will be a watershed moment. It will create an ultimate corporate empire. What it does is to remove the political centralization of sovereignty, but strengthen the commercial center, and it will become Libra's optimal currency area (similar to the euro).
But it is unstable, and the instability not only comes from the instability of the architecture, that is, which types it uses to form the SDR basket, but more importantly, if he publishes it, I guess Google will also publish it, as will Tencent and Baidu. And it is estimated that we will support them, so that it becomes the continuous competition of each different currency area in the network space, just like we see thousands of currencies are constantly competing here, and ultimately depends on the alliance chain How big is it? How extensive are the underlying application scenarios? And who is the lender of last resort?
Now everyone knows that Facebook’s 500 billion market value seems to be too large to fail, but we have also seen companies with a large market value disappear and become zero in the end. Who can we turn to cash in at that time? That is to say, such a digital currency replaces the physical currency gold and silver, and also replaces the sovereign currency. In short, it challenges the existing monetary authorities and the distribution of major interests behind it. Of course, we think that algorithms may represent a higher-level language that everyone can share. The same is true for the Internet. It is more of a kind of trust, and trust may also be an algorithm.
We were originally based on real gold and silver, and later based on the trust of sovereign issuance. Now we have obviously failed us. Can digital currency live up to us? Tell everyone that all technical people will have their own calculations, no matter how universal or humanistic elite they pretend to be. In fact, Libra may also succumb to the demands of capital and the dark things in the hearts of elites.
Where do we think the key changes will be? Assuming that we can start to operate slowly through various supervisions and start to convert users, we think the fifth year is the real key, because it promises to give up centralization and become non-permissioned in the fifth year , handed over control, and turned into a real Bitcoin or algorithmic currency. This time may be the beginning of a huge watershed.
Frankly speaking, if it really hands over such things, its power is not enough to make everyone worry, because it has already been made public, and there is no self-interest anyway, but what kind of problems will arise at such a juncture of conversion? Just like what kind of major changes will be triggered by the launch of digital currency by the central bank, we must observe carefully.
Finally, what should we do in such a complicated situation? How to deal with it? How to react accordingly? First of all, just like SDR, China can ask for more shares, because there are 100 nodes, so are you willing to put China's important nodes here. It doesn't mean that it is universal, open, and finally going to a distributed network. Can it be opened to the Chinese? This is a very good litmus test for its ideal purity.
The second one is of course BATJ can enter, because there are 10 million ones, you can enter, first occupy a pit, this is such a logic. Also why did the global central banks react more violently this time? Including that China has become very OPEN now. In fact, China will definitely add Chinese Internet giants to the central bank to issue a digital currency that is fully social in China and has all application scenarios. The 100 that Libra is looking for, now 24, are basically in the key non-financial giants, such as taxi-hailing scenarios, credit card scenarios, remittance scenarios, our e-commerce scenarios, social scenarios, and exchange scenarios. These are formed It is more applied to a good ecological structure.
On the other hand, I am in the Yangtze River Delta, because we have relatively sufficient infrastructure and a lot of application scenarios, can I learn like Libra. Of course, the Internet giants are ahead, and this may come from the industrial industry, because it has more application scenarios, such as in the supply chain, in bills, in credit investigation, in bondification, and land rights confirmation. A sufficient application scenario allows such a digital currency to operate in an alliance manner. We can also assume opening up to other key players or becoming a fully decentralized system ten years from now.
In the end, we judged that the competition of the central bank's digital currency is the sovereign Libra. I agree with what the rock said just now, it is actually M0, but is M0 cancelled? I don't feel that worried myself. Because he said, it is M0, why can only limit M0? It's very simple, what he has to do is this, M2 is handed over to the animal spirits, and handed over to the commercial banks themselves, which depends on the endogenous growth of your economy. If you achieve M0, you can do a lot, such as peer-to-peer compliance, anti-money laundering, and even negative interest rates. It is unwilling to intervene in a higher level of currency derivatives, because it will trigger the entire central bank's full point-to-point control of all economies, which was too difficult to imagine at that time, and it actually has no ability to do this.
