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Tsinghua Financial Review: Monetary Institutions, Modern Central Banks, and Digital Currencies



Original title: "Decoding Central Bank Digital Currency | Joyd: Monetary System, Modern Central Bank and Digital Currency" At present, most central banks in the world have also carried out active-zce exploration. According to a survey conducted by the Bank for International Settlements (BIS), in the next three years, central banks issuing retail CBDCs may cover one-fifth of the world's population. To truly understand these changes, it is necessary to examine the digital currency in a broader perspective. By understanding the evolution of the currency system and the formation of the modern central bank system, we must analyze the future trend of the digital currency and its impact on the economy, finance, and currency. Institutional impact. In the future, the value advantages of legal digital currency can also be further explored. "Tsinghua Financial Review" invited experts and scholars to discuss this in the March 2021 issue, in order to open up the imagination of the central bank's digital currency. Digital currency, including the central bank's digital currency, is the focus of current regulators, economics, and financial circles. People pay attention to the characteristics, development trend and possible impact on the economy and finance of digital currency. To truly understand these, we must examine the digital currency in a broader perspective. By understanding the evolution of the monetary system and the formation of the modern central bank system, we must analyze the future trend of digital currency and its impact on the economy, finance, and monetary system. Impact. Generally, people use currency mainly to use its functions of exchange, valuation and value storage, so they naturally pay more attention to the material and physical form of currency. However, the institutional factors contained in currencies of the same material may be very different. As far as banknotes are concerned, during the Song Dynasty, our country had already used the "Jiaozi" produced in Sichuan for the first time in the world, but compared with our modern banknotes, it is more difficult in terms of the issuer, the way of issuance, the scope of use and the impact on finance. They are all incomparable. When some scholars study the history of currency, they divide currency into physical currency and metal currency. The former corresponds to the so-called natural economy, and the latter corresponds to the monetary economy. This division makes sense, but there are also some problems. For example, precious metals such as gold and silver have their own use value and can also be considered as real objects. Therefore, we should aim at the evolution of currency and understand the institutional factors behind it from a deeper perspective. Scene | Zhu Min, Dean of the National Institute of Financial Research, Tsinghua University: Blockchain enables finance to move towards a credit culture faster: Jinse Finance live report, on the morning of September 24, a global high-level event directed by the Shanghai Municipal Government and hosted by Alipay and Ant Group The "Bund Conference", a high-level financial technology conference, opened in Shanghai. Zhu Min, Dean of the National Institute of Finance of Tsinghua University, pointed out on the spot that traditional finance is a mortgage culture, and it is a big leap from mortgage to credit loan. The core of credit loan is to establish credit, so that individuals can obtain better services. The blockchain can provide great help, allowing finance to move towards a credit culture faster. At the same time, the central bank's digital currency is also moving towards this system. Based on the blockchain, it will lead us into a completely new three-dimensional world, and realize the credible interconnection of everything through the blockchain and the Internet of Things. [2020/9/24] From the perspective of the development process of currency, what surpasses its material, shape and composition is its connotation, that is, the issuing (production) subject, issuing method and its support, which can be referred to as the currency system for short. The monetary system can be divided into three categories: the first category is that the currency itself contains use value. These include the well-known shells, cattle, sheep, silk, etc. that appeared in the history of currency development, all the way to precious metals. Of course, this can also be called a currencyless system, because the currency itself has use value, and the producer can be an individual or a group. The second category refers to the forms of various currencies under the currency standard. The so-called currency standard is the benchmark or "anchor" of the currency, which generally refers to heavy metals and can also be a reserve currency. For example, Hong Kong currently adopts a currency board system whose currency standard is the U.S. dollar. The currency under the currency standard system can be issued by the central bank, but it was issued by commercial banks in many cases in history, and the number of issuers has a tendency to converge. The third category is the credit currency system. The global currency and credit system is generally believed to have been formed with the collapse of the Bretton Woods system in the early 1970s. The governments or central banks of various countries monopolized the issuance of legal tender, and there is no tangible support behind it but only the credit support of the government. . The emergence of the credit currency system is not triggered by a certain technology, but the result of the natural changes brought about by the economic development to the currency system. After the Second World War, the global economy experienced a golden age of rapid development, and the global economic structure underwent major changes. That is, as the post-war Japanese and Western European economies gradually increased in the global structure, the US dollar was used as an anchor. The gold exchange system in China has been unable to adapt to this pattern, the so-called "Triffin" dilemma led to its collapse, inadvertently contributed to the emergence of a comprehensive modern credit currency system. The most important feature of the modern currency system is that the issuance of currency does not require any material support, but relies purely on the government's credit support, and the government's credit is implemented by the government's coercive force. Therefore, the issuance of such currency adapts to the globalization of the economy and the relatively high-speed development of the economy. Voice | Associate Professor, School of Economics and Management, Tsinghua University: Financial transactions are a natural application scenario of blockchain: On November 19, at the "Blockchain Financial Application Prospects and Challenges Seminar" co-sponsored by the Economic Observer and New Financiers Alliance At the meeting, Zhu Yingzi, an associate professor at the School of Economics and Management of Tsinghua University and deputy director of the China Financial Research Center, discussed the application of blockchain in financial transaction scenarios from a financial perspective. Zhu Yingzi said that financial transactions are a natural application scenario of blockchain. The characteristics of the blockchain are "very consistent" with financial transactions to solve the pain points of financial transactions, but it also pointed out that the blockchain cannot solve all problems, but it can indeed improve transaction efficiency by reducing transaction costs. "Blockchain can't solve all problems, it can only solve some of the problems. For example, it can't solve whether this market can exist, and whether all parties to these transactions have the motivation to participate." Zhu Yingzi said, "But blockchain can use Technical methods promote industry standards and standardize industry chaos, which has indeed solved the great pain points of this industry.” (Economic Observer) [2019/11/23] The emergence of the global credit currency era has subverted people’s previous understanding of financial and currency laws some cognition. For example, the theory of monetarism was popular in the 1960s and 1970s, but its defects have been pointed out by more and more people. Inflation is not all a phenomenon of money. Currency is very related to the real economy, but it is not a one-to-one correspondence in the strict sense. To make a metaphor, for example, compare the amount of currency to a rubber band. It has a certain stretching ability, but this ability is also limited. If it is pulled too hard, it will break. Similarly, too much money may cause inflation or cause asset price bubbles. In addition, the well-known "Gresham's law", that is, bad money drives out good money, this rule is only applicable to the precious metal era. But in the era of credit currency, it is a general law that good money drives out bad money or that money with strong credit drives out money with weak credit. This situation creates preconditions for the central bank to play a greater role in macro-control. Volcker's Federal Reserve was a success story in controlling high inflation in the 1980s. It can be said that the emergence of the credit currency system has promoted the formation and perfection of the modern central bank system. Voice | Cai Mingjun, Tsinghua University: In the future, the artificial field and the blockchain will be more deeply integrated: Recently, the 24th issue of BTV's "Decoding the Blockchain" invited Cai Mingjun, deputy director of the Blockchain Application Laboratory of the Internet Industry Research Institute of Tsinghua University , When discussing the topic of the connection between blockchain and artificial intelligence, Cai Mingjun said: Artificial intelligence and blockchain are an orthogonal relationship. Artificial intelligence solves problems in one dimension, and blockchain solves problems in another dimension. things, but there is an orthogonal focus among them, the means of production. The means of production of the digital economy is data, artificial intelligence is mining the productivity of data, and blockchain is helping us solve some relationship processing and security. At the level of smart cities, medical care, and health big data, blockchain and artificial intelligence are more closely integrated. Because people are involved, security analysis issues are even more important. In the future, in many fields, artificial fields and blockchain will meet Very deeply integrated. [2019/4/24] Historically, the world's first central bank was the Riksbank, established by the Swedish government in 1659. The emergence of the central bank is the inevitable result of social and economic development, and also the natural result of the evolution of commercial banks. In the 17th and 18th centuries, the industrial revolution had begun to sweep the world, and commercial banks came into being. Commercial banks issue commercial bills, and a neutral and independent institution is required for the exchange and settlement of bills. Commercial banks implement a fractional reserve system, and there will also be runs and bankruptcies, which also require an independent and powerful institution to clean up. The central bank appeared in this situation, so it is often called "the lender of last resort" (The Last Resort of Credit). The central bank of the United Kingdom has a greater impact on the world. In 1694, William III, who ascended the throne through the Glorious Revolution, approved the establishment of the Bank of England. When it was established, the Bank of England obtained the right to issue currency on the condition of providing loans to the government. In 1844, according to the "Peel Ordinance", the Bank of England monopolized the issuance of bank notes, gradually monopolizing the right to issue national currency, and became the only currency issuing bank in the UK in 1928. Monopolizing the issuance of legal tender is arguably a core function of a modern central bank. Tsinghua x-lab Blockchain Acceleration Camp was officially launched: On June 5, 2018, Tsinghua x-lab Blockchain Acceleration Camp was officially launched in Beijing. Xia Li, director of the x-lab blockchain laboratory, He Ping, director of the Financial Innovation Center of Tsinghua University School of Economics and Management, Zhen Fu, senior investment director of Huobi Capital, and Yang Yumei, partner of Node Capital, attended the speeches. Tsinghua x-lab, together with top domestic investment institutions Huobi Capital, Node Capital, Shuimu Financial Technology Fund and other blockchain investment institutions, launched a blockchain acceleration plan. In addition, Jinse Finance, as the core supporting media, participated in the full report of the launch of the Tsinghua x-lab blockchain laboratory and the acceleration camp. [2018/6/5] In addition to the above reasons, the establishment of the central bank of each country is also closely related to the country's social and economic system and economic development stage at that time. Here are two interesting cases, namely the establishment and development of the central bank of the United States and the central bank of China before liberation. Both central banks were established around the same time. In 1913, the U.S. Congress passed the Federal Reserve Act, and in 1914 the Federal Reserve Bank of the United States was established. In 1904, China (Qing Dynasty) established the Household Bank, which is the central bank. In 1908, the Household Bank was renamed the Bank of Great Qing, with its headquarters in Beijing. In 1911, after the outbreak of the Revolution of 1911, it was renamed the Bank of China. Although the two countries established their central banks at similar times, their social backgrounds are completely different. The United States has tried to establish a central bank three times in more than 100 years (they were the Bank of North America in 1781, the Bank of the First United States in 1791, and the Bank of the Second United States in 1861), but they all ended in failure. There are many reasons for this, but the main reason is that the United States is a federal state, each state has its own interests, and the conflicts of interests in various places make it difficult to establish a unified national central bank. Regulatory confusion in the states has allowed private banks to take advantage of it. In 1907, the United States had an economic panic, and finally had to use a compromise method to establish a central bank by setting up regional branches. With the establishment of the Federal Reserve, the competition for currency issuers that lasted more than a century has finally come to an end. This not only enables the United States to continue to develop rapidly after becoming the world's largest economy, but also plays a vital role in establishing the global hegemony of the US dollar. China has been in a semi-feudal and semi-colonial social environment for a long time in modern times, so although the central bank was established at that time, the central bank did not really monopolize the issuance of currency afterwards. At that time, the warlord melee led to political instability, and all commercial banks, including foreign banks, could issue their own currencies, which caused great chaos and had a huge negative impact on the Chinese economy. Until the 1930s, China implemented the currency system of "abolishing the two and changing the yuan" and carried out the reform of the legal currency. So far, the central bank has truly mastered the right to issue currency and become a central bank in the true sense. Jinse Finance live report Mao Donghui, director of Tsinghua x-lab: University on the chain allows students to learn more freely: Jinse Finance live report, at the Tsinghua University Blockchain Education and Industry Innovation Summit and the founding meeting of the Ivy League, Tsinghua x-lab Director Mao Donghui said that traditional universities actually recommend courses in batches, but students are different, and each student has a different degree of acceptance of knowledge. If you learn through universities on the chain, this will undoubtedly reduce some restrictions , so that students are more free in the process of learning, and can actively promote the spontaneity and enthusiasm of students in learning. [2018/5/27] Judging from the practice of various countries, the central bank system has some common characteristics in terms of historical evolution, basic goals, and governance structure, but they are not completely the same. In 1983, the State Council decided that the People's Bank of China would exclusively perform the functions of the central bank. In 1995, the "People's Bank of China Law" was formally promulgated, marking that my country's central bank system has entered a new stage of legalization and standardization. Since the 18th National Congress of the Communist Party of China, the Party Central Committee and the State Council have made new regulations on the allocation of functions of the People's Bank of China, strengthening the People's Bank of China's macro-prudential management, systemic financial risk prevention, and overall supervision of financial infrastructure. The needs of quality development are more suitable. At the same time, we must also see that after long-term development and reform, my country has become a major financial country, the situation of national financial security and stability is complex and severe, financial technology has profoundly changed the financial industry, and the construction of a modern central bank system is facing many new opportunities and challenges. The Fourth Plenary Session of the 19th Central Committee of the Communist Party of China proposed to build a modern central bank system from the perspective of promoting the modernization of the national governance system and governance capabilities. The Fifth Plenary Session of the Nineteenth Central Committee of the Party is based on promoting high-quality development, coordinating development and security, and making strategic deployments for the construction of a modern central bank system, which is of great significance. On October 23, 2020, the "Law of the People's Republic of China on the People's Bank of China (Revised Draft for Comment)" included functions such as macro-prudential management and supervision of systemically important financial institutions into the central bank's responsibilities, which will help the construction of a modern central bank system. The revised draft also stipulates that the renminbi includes both physical and digital forms, which will provide a legal basis for the issuance of digital currencies. Yi Gang, Governor of the People's Bank of China, published the article "Building a Modern Central Bank System" in "The Central Committee of the Communist Party of China's Suggestions on Formulating the Fourteenth Five-Year Plan for National Economic and Social Development and the Long-term Goals for 2035" Tutorial Reader , explained in detail the significance, connotation, and major measures of building a modern central bank system.


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Tsinghua Financial Review: Monetary Institutions, Modern Central Banks, and Digital Currencies

Original title: "Decoding Central Bank Digital Currency | Joyd: Monetary System, Modern Central Bank and Digital Currency" At present.

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