This article is about 4,000 words and takes 7 minutes to read
Editor’s note: On April 26, Cai Weide, Senior Research Fellow of the Chongyang Institute of Finance at Renmin University of China, Professor at Beijing University of Aeronautics and Astronautics, Tsinghua Changjiang Chair Professor, and Director of the Digital Society and Blockchain Lab at Beihang University, shared his latest thoughts on “Technology, Market, and Regulation in the New Currency War” in the third lecture of the series of live events hosted by NPC Chongyang. He shared his latest thoughts on “Digital Currency Zone Theory and its Impact”. The content of this session will be divided into two parts, the following is the live video and transcript of the next part. For the previous part, please see: Why digital currencies are the enemy of the UK and US? Frontier experts explain
1、Now the competition is fiat currency competing with fiat currency, fiat currency competing with stable currency, fiat currency competing with digital tokens, stable currency competing with stable currency, stable currency competing with digital tokens, digital tokens competing with digital tokens, a complex currency war has emerged.
2, digital tokens are the most money laundering, the most accidents, but now digital tokens have been semi-legalized or compliant, now the investment in digital tokens is not the cryptocurrency circle, not the underground economy, but insurance companies, funds, banks, this is a big shift.
3, the world fiat currency and bitcoin competition is in need of international cooperation, because digital tokens will pose a competition to all fiat currencies around the world, which is a very serious problem. Compliance market if fused with the digital token market, this situation is the most terrible phenomenon.
4, the IRS conveyed an important message, from 2020 to start managing bitcoin, any transaction to be able to track, and to use the highest level of technology, take the highest technology for anti-terrorism to track bitcoin transactions, do digital currency competition.
- Digital stablecoin is a fiat currency pioneer and a moat. In this new type of currency war, digital stablecoin is an important line of defense to protect fiat currencies.
New type of currency competition in November 2020
First, let’s look at the following chart. The author has mentioned this chart several times. Because of the New Crown virus, many countries printed large amounts of money, the FATF started enforcing travel rules on June 30, and digital currencies started exponentially exploding after June 30. in November 2020, some analysts in the US said that bitcoin was already more liquid than both the British pound and the Russian ruble combined, which was very surprising. At the time, many regulatory units in the U.S. penalized many of them, finding them in violation. In 2018, if one company was punished, the entire digital token community went down and dived, but now it’s just the one company that was punished that went down and the rest continued to skyrocket, which means a different phenomenon is emerging. Now it’s not the cryptocurrency community and the government fighting, it’s not the anarchists and the government fighting, now it’s the compliance market and the world monetary system competing, because most of the people investing in bitcoin now are compliance institutions.
In early November 2020, analysts found that bitcoin’s liquidity exceeds that of the British pound
It’s amazing how we used to think that only people hiding behind walls and out of sight were engaging in digital currency trading, and now it’s people in suits and ties, buying bitcoin in banks, insurance companies, and funds. Overnight, the whole aspect of how currencies compete and so on is different, all of a sudden it becomes a triadic race, which will lead to a lot of new theories.
Phenomenologically, this is serious digital currency competition, which is what the digital currency zone theory predicts. But now the competition is fiat vs. fiat, fiat vs. stable, fiat vs. digital tokens, stable vs. stable, stable vs. digital tokens, digital tokens vs. digital tokens, and a complex kind of currency war has emerged.
- Currency competition scenario
An interesting period in Chinese history is the Three Kingdoms period. There were one-on-one situations in the Wei, Shu and Wu contests of the Three Kingdoms, but many times it was a two-on-one contest, such as when Liu Bei and Sun Quan teamed up to fight Cao Cao and the Battle of Red Cliff beat Cao Cao badly. But there were also Cao Wei and Dong Wu cooperating to fight Shu Han. So, in a ternary environment.
1) Traditional currency competition is fiat currency competing with fiat currency, for example, the dollar competes with the yen and the dollar competes with the euro, and the Federal Reserve mentioned the history of these two fiat currencies competing with the dollar in March 2021.
2) Fiat currency and stablecoin competition, such as the euro competing with the Facebook stablecoin, and the European Central Bank has been saying it wants to defend against Facebook’s stablecoin.
3) Fiat currencies and digital tokens compete, such as the dollar and bitcoin competition, in March 2021, the Federal Reserve publicly said that bitcoin and we compete, the first digital currency or digital token bitcoin directly challenge the dollar.
4) Stable coin and stable coin competition, such as Facebook stable coin and USDT competition, Facebook out of the first blow will be USDT
5) Stable coins and digital tokens competition, Facebook’s stable coin may also compete with bitcoin later.
6) Digital tokens and digital tokens competition, such as bitcoin and ethereum competition.
- Competition Scenarios
There are different competition scenarios, such as one-to-one, digital stablecoin competing against digital stablecoin; two-to-one, fiat and other stablecoins competing with another fiat; three-to-one, fiat and stablecoin cooperating with another fiat, but the fiat has digital tokens competing behind it, these three sides are fighting each other back and forth, and the situation is very complicated. The risk of digital tokens is the greatest.
Because it is competing with all fiat currencies and digital stable coins. Digital tokens launder the most money and have the most accidents, but now that digital tokens have been semi-legalized or compliant, it’s not the cryptocurrency world, not the underground economy, but insurance companies, funds, and banks that are investing in digital tokens now, which is a big shift.
Fidelity USA came out with an article in December 2020 stating that it recommends that the treasury departments of US companies should own some bitcoin. fidelity is the largest, most compliant, and very conservative brokerage firm in the country and in 2020 is recommending that every major company take that amount of money and buy bitcoin! The logic behind this is worth a second thought. In March 2021, the Federal Reserve said it was confident it could beat bitcoin and that it would be fine to save dollars. But even Fidelity, a company that thinks bitcoin and the dollar are really competing. And “what if” the dollar, which is definitely going to win, loses, what should U.S. companies do about it?
Conservative U.S. Securities Firm Recommends U.S. Businesses Buy Bitcoin “Just in Case” in December 2020
Blockchain Bites says the U.S. government is going to fight Bitcoin, and that the U.S. will not agree if Bitcoin strikes the dollar and defeats or weakens the dollar’s reserve position. As a result, they believe the U.S. will definitely crack down on bitcoin. Such news has been appearing since the beginning of this year, and the Federal Reserve has spoken publicly about its confidence in bringing down Bitcoin.
- The Need for International Cooperation
International cooperation is needed for the world’s fiat currencies to compete with bitcoin because digital tokens pose a very serious problem for all fiat currencies around the world. India fired the first shot in March 2021 when India said that Indian citizens are not allowed to buy bitcoin, own bitcoin, or trade bitcoin. And India announced this immediately after attending the quadrilateral security meeting, and you can see that this matter not only affects the United States, but India and others are affected.
- Binary competition and ternary competition
The forms of competition include unitary competition, binary competition, and ternary competition. The unitary competition refers to fiat currency, foreign currency replacing the phenomenon is serious in the region, not related to the platform is king, not related to the theory of digital currency, macroeconomics impact is serious in the place where there is the phenomenon. Binary competition becomes fiat currency and stable currency competition, and the phenomenon of foreign currency substitution can happen in every place in the world, the problem is more serious, the platform is king has influence in the world, not regional influence, the monetary theory area is in the global influence, not regional influence, for macroeconomics, is the global influence, and for historical unprecedented influence, which is the view of the International Monetary Fund in 2020. The triad competition is more serious, fiat currency, stable coins and digital tokens, because digital tokens have hard to remove, the phenomenon of foreign currency substitution is more serious, the platform is king is more serious, the compliance market if the integration of the digital token market, this situation is the most terrible phenomenon, now no one can imagine how terrible this phenomenon will be.
Princeton University: Digital Currency Competition
Digital currency theory has a much greater impact on all aspects. Princeton University theory says that digital currency competition has international and domestic, including offensive international competition, defensive competition, public funding, platforms and other phenomena, it believes that the most important is defensive competition, it also believes that domestic competition between private currencies as well as fiat currencies is more important.
- Platform competition: flounder model competition
This is an important message from Professor Rogoff. Why everyone wants to be a platform, because whoever owns the platform can see the information on the platform, such as SWIFT, an organization that can see the money coming and going all over the world, and if digital currency is financial platforming later, digital currency platforms become invaluable.
I wrote an article in 2019 which included the flounder model. A flounder is a very strange fish that has two eyes on one side and no eyes on the other. The platform side of a digital currency platform can see everything, but the participants can only see themselves, so isn’t that the “flounder” model?
So Rogoff’s article says, “You may not like Libra, but Libra is important, and without Libra there could be more trouble.
In the flounder model, there is sovereign sharing, secure sharing, partial sharing, hierarchical fragmentation, etc. I talk in the article that how exactly the platform is designed is a big learning curve. So, what people can see what things when designing blockchain is a very important research topic, but few people are studying it now, and it is an important topic that scholars can study today.
Princeton University’s defense strategy
- Central banks and the IRS are the first defense strategies
Princeton University has proposed several defensive measures. One is digital currency competition, and he believes the first defense is central banks and the IRS. The central bank is a very important player in the digital currency war. Rogoff of Harvard University suggested in his short article that the IRS and the currency also have a very big relationship, and he talked about how the underground economy is managed with taxes, which means the IRS will definitely step in to manage digital currency.
- The IRS and High-Tech sign a partnership
In March 2021, the IRS signed a contract with Palantir, a company in the United States, which is the Operation Hidden Treasure program. Its high technology is used specifically to find terrorists, and such a large high-tech company is now tracking bitcoin transactions.
U.S. High Tech Company Admits to Working with IRS
The IRS conveyed an important message to start managing bitcoin from 2020, any transaction should be able to be tracked and the highest level of technology should be used to take the highest technology in anti-terrorism to track bitcoin transactions and do digital currency competition.
- The IRS only collects fiat currency to fuel the new currency war
The IRS to manage digital currencies and governance of digital currencies is an important dollar defense measure. In the future, the IRS can only collect dollars, not bitcoin or other currencies. It protects the dollar by doing so. This way if one holds bitcoin, one must sell bitcoin for dollars to pay taxes, and at the very least bitcoin will fall during the annual US tax filing period.
The president of Palantir says he buys bitcoin himself, but he doesn’t buy it enough to affect the dollar losing its status as the world’s reserve currency.
- Central banks out CBDC as 2nd defense strategy
Princeton University recommends that every country should develop CBDCs to counteract stablecoins and the like. Princeton University believes that stablecoins and narrow banking can be important defense strategies. This is in line with Harvard University’s Professor Rogoff, who preceded the emergence of CBDC with stablecoins. Stablecoin is the first digital currency to protect the dollar.
This is the same point we have mentioned in the past (early 2019) that digital stablecoins are fiat currency pioneers and moats. In this new type of currency war, digital stablecoins are an important line of defense to protect fiat currencies. This was also supported by the US Treasury in 2020, and now Princeton University agrees with this view.
After the CBDC comes out, digital stablecoins are “all gone”
But Princeton University’s other view is that stablecoins will definitely be suppressed when CBDC comes out. This is another digital currency competition. It’s the same dollar, one is CBDC, one is dollar stablecoin, but CBDC is suppressing dollar stablecoin. The United States before the CBDC dollar has not yet come out, is the first to stabilized coins, stabilized coins first after the central bank digital currency later to receive the market of stabilized coins, so it is “birds of a feather”.
He believes that after the CBDC dollar comes out, the dollar stabilized coin will eventually shift to high-value and low-volume services, which can be studied and thought about.
- The U.S. CBDC program needs a few more years of development
We predict that it will be difficult to establish a US dollar CBDC program in a few years, because the US has not yet established the relevant system. The U.S. has been talking about the FedNow system before, and when the Fed discussed FedNow in February 2020, it was discussed together with CBDC. The FedNow will only come out in two or three years, and it will probably be harder for the CBDC to come out before it does.
- regulatory policy, encouraging innovation is the 3rd defense strategy
Princeton University also recommends regulatory policy first, as does Harvard University. It also reminds us that we should have regulatory policies in place before all aspects of technology and platforms are available, and that we need to strictly control the conversion rights and interaction capabilities to define new markets with regulatory policies, and change and guide new markets through regulatory powers, rather than just engage in regulation through regulation.
Princeton University argues that none of these things can be decided by a single country, as digital currency is now an international event that requires international cooperation.
Princeton also suggests that every country should develop technology and encourage innovation.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/full-scale-competition-world-powers-are-competing-on-digital-currencies-frontier-experts-explain/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.