- Digital currencies are now “blossoming” because of the legalization of digital tokens and the large amount of compliance funds invested, so digital currency development is “progressing at breakneck speed”.
2, 2016, the Bank of England through the release of CBDC model RSCoin let us work for them for free, and now the Federal Reserve also do the same.
3, digital currency technology may change the status of the U.S. dollar to continue to be the world’s reserve currency, and therefore will affect the status of the U.S. financial system in the international.
4, digital currency will have a huge impact on macroeconomics. The emergence of digital currency is a “historic and unprecedented change”, is a once in three hundred years financial reform, this reform may be one or two decades are difficult to digest.
- If digital tokens replace fiat currencies, replace stable currencies, or replace central banks CBDC, this matter will be more serious, because digital tokens are very difficult to remove.
Digital currency has recently received a lot of attention from the world, especially from the United States, and now it is the era of “blossoming” because digital tokens are legalized and a large amount of compliance funds are invested. In this situation, new theories are coming out and developing very fast, both in the private sector and government units are researching and developing digital currencies, so the development of digital currencies is “progressing at a rapid pace”.
- April 16, 2021 Digital Currency 2.0
On April 16, 2021, according to CNBC, a major U.S. financial media outlet, the Federal Reserve Chairman said that the digital dollar is a high-level, prioritized project, which is very different from the previous one. In 2018 and early 2019, the Fed said it was only being studied. By February 2020, the Fed said it was being studied very carefully. On April 16, 2021, the Fed said it was a “priority item. Also on April 16, Citi came out with a report called “Digital Currency 2.0,” which said, “Some see this as a new space race or a digital currency cold war, but we believe this is not a zero-sum game and that the digital world is big enough to accommodate multiple parties to grow.”
More than six decades ago (starting in 1957), the United States was in a space race with the then-Soviet Union. The Soviet Union launched rockets to the moon before the U.S. did, and the U.S. opened the space race in order to surpass Soviet technology. In spite of the lack of computing power, the U.S. was able to achieve a great deal, and later achieved the moon landing and other achievements. This space race was the great technological race between the United States and the Soviet Union.
Professor Rogoff of Harvard University said that for the United States digital currency competition is a life and death currency war. But Citibank says it’s not a zero-sum game, because the market is so big that many people can participate and profit.
- March 31, 2021 Federal Reserve and MIT
On March 31, 2021 the Federal Reserve announced that it will introduce two central bank digital currency (CBDC) experimental platforms in July 2021. MIT has always focused on digital currencies. 2015 I discussed blockchain with the president of the MIT Digital Currency Club, as well as Vitalik Buterin of Ether (Vitalik Buterin) and Tsinghua teachers (also MIT PhD) at Tsinghua University. Brian Forde, the U.S. White House science advisor at the time, went to MIT to set up the Digital Currency Initiative (https://dci.mit.edu/about) after quitting the government.
And in 2020 Gary Gensler, a scientist at MIT’s Digital Currency Initiative, became an advisor to the U.S. Biden administration and later became SEC chairman, which is an important signal.
- the Bank of England makes us “work” for them for free, and now the Federal Reserve does the same
In 2016, the Bank of England came up with a CBDC model, RSCoin, but it was quickly dismissed by academics, and the Bank of England later abandoned the model. When the Bank of England proposed the RSCoin model as their official model, scientists around the world interested in CBDC went to study the model, which is equivalent to working for the Bank of England for free. This is the cleverness of the Bank of England, our team in Beihang spent most of the year and many people studied and discussed many times. At that time, it was judged that the Bank of England has not actually studied well, it was announced to the public that this is the model of the Bank of England CBDC, and this model is at most a prototype. These views appeared within the author’s multiple articles in 2016.
Failure is normal when it comes to scientific experiments, as failure is the mother of success. But now the Federal Reserve and MIT are about to launch two experimental models that will have many scientists in many worlds working on their models.
- the monetary policy is not yet set, the experiment first
As you can see, this CBDC program in the United States has already entered the stage of experimentation. There is another important information in the report, why the model of digital currency operation is sent out first? The report says that the U.S. cannot wait for policy clarity because it may take a little more time, maybe a year or two, or two or three?
From the papers and speeches we read now on the theory of digital currency policy in the U.S., the Fed should still only be in the early stages of exploration and still some time away from deployment. The Bank of England has been discussing digital currency policy for six years, but the problems identified early on have not been decided as to what solution is better today.
- April 20, 2021 Bank of England
The UK announced on April 20 the creation of a new CBDC Task Force (Task Force) to focus on accelerating the digital pound initiative.
UK Opens CBDC Task Force on April 13, 2021
As far as developing CBDC is concerned, the Bank of England was supposed to be the world’s leading central bank and has been developing CBDC since 2015, and the 2019 digital currency war was initiated by the Bank of England. So the fact that it is now launching a new task force means that the digital pound will be out soon, and estimates from the platform of policy, and trials on all fronts suggest that the digital pound is likely to emerge before the Federal Reserve digital dollar. The Bank of England is to develop the digital pound through the whole layout and reform. Analyzed by game theory, the smaller the country, the more frontier should be able to fight for opportunities.
- February 2021 UK report focuses on blockchain infrastructure
A research report (Kalifa Review) released in the UK in February 2021 stated that the UK has been talking about digital finance and digital currency for a long time, but now the Americans are running ahead. The U.S. has really been more systematic, bolder and more cutting-edge than the U.K. since 2020, especially the U.S. Treasury’s layout in mid-2020 to early 2021 is surprising. The U.S. Treasury in 2020 says in three to five years the entire Federal Reserve payment system will be a blockchain network.
The UK says there is still a lack of digital asset infrastructure that should be taken seriously, and that blockchain now has no standards and does not interact. (Remark: The U.S. also said it should pay attention to digital asset infrastructure, and digital currency cannot be done without it.)
- UK changes rules to support fintech
To support UK fintech, Kalifa Review suggests changing the listing rules for stocks to accelerate the listing of digital currency-related companies. The UK’s previous regulatory sandbox and accelerator are clearly not enough. Now the UK wants to nurture new technology companies by developing a Digital Scale-box instead of a regulatory Sandbox. This new scale-box is similar to the services of Fintech Sandbox in Boston, USA. The scale-box puts all the data tools together to specifically support new companies in digital currency and digital assets, providing real data for them to experiment with. This is very valuable, without data science and systems can not progress.
- the biggest monetary reform in 320 years
In 2016, I attended an international conference where participants were actually central bank academics including the European Central Bank, the Federal Reserve, the Bank of England, the Bank of Italy and the Bank of Germany. The Bank of England speech said the issuance of the digital pound is the world’s largest monetary overhaul in 320 years, which made the central bank scholars sitting below a number of countries very excited.
- Technology changes currency and financial markets
Many of the ideas and predictions discussed by the Bank of England at the time in 2016 are now coming true. For example, at the time, the UK predicted that digital currencies and CBDC programs would certainly change financial markets, a view that some academics have long had reservations about. But in November 2019 the first sentence of Professor Rogoff’s short article at Harvard University said that any doubts must cease, as the national interests are now at stake. There is no point in continuing to discuss whether digital currencies will have an impact on financial markets.
The first sentence in Rogoff’s short article at Harvard University (below) says that technology is changing the monetary system (and the financial system that uses it), and just as technology has changed media, politics and business, technology is undermining the confidence of the U.S. national currency to pursue its broader national interests. Technology has changed money, and that is a major message. Monetary policy, the circulation of money, and monetary theory have changed because of technology, and markets will change. “
Just as technology has changed media, politics, and business, technology is undermining confidence that America’s own currency can pursue its broader national interests.” (Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests.)
- Professor Rogoff, Harvard, November 2019
This quote says that digital currencies affect the dollar, which is the world’s reserve currency. Therefore, digital currency technology may change the status of the U.S. dollar to continue to be the world’s reserve currency and therefore the status of the U.S. financial system internationally.
Digital Currency Zone Theory Extension
The digital currency zone theory is progressing at a rapid pace. As seen in the U.S. and U.K. approaches, they are not just developing blockchain systems, but actively discussing and deploying them. For example, the U.S. Treasury and its deployment is very rigorous, proposing many specific plans that are big and ambitious. And the 2021 UK report, also recommends changing the rules for listing to specifically give the green light to digital currency and digital finance companies.
Transactions determine the world’s reserve currency, which means that transactions are king. If transactions are king, that means the whole technology, finance, currency and regulation all have to change, which is a very important thing. The financial world is no longer bank-centered, but blockchain-centered. This idea has influenced the entire economic theory thinking at Harvard and Princeton. The U.S. Treasury says the whole financial structure will reform if the platform is at the center.
When Princeton University did the digital currency zone, it only considered the competition between Facebook’s stable coin and fiat currency, which belonged to the binary competition. But now it seems that it becomes a ternary competition from November 2020. The previous text talked about Bitcoin accidentally challenging the US dollar.
- Digital Currency Zone Reference
A user asked if there is a reference book for the Digital Currency Zone. What happens to the theory behind it?
One of the most important articles on the digital currency area is “The Macroeconomic Implications of Cross-Border Payments” (Digital Money across Borders: Macro-Financial Implications) released by the International Monetary Fund on October 19, 2020 .
But if you don’t understand the theory of digital money area this will be difficult to understand this article, some of the theories in it are different from the traditional theory, drawing different diagrams and discussing different ideas. This report indicates that digital currencies have unprecedented impact. If you want to understand the theory and impact of digital currency zone, you should read from this article.
- IMF 2020 Cross-Border Payments Report Perspectives
The IMF 2020 Cross Border Payments report expresses support for digital currencies replacing local currencies and also changing the rules of competition for the world’s reserve currencies. It not only mentions a lot of data later, but also makes a lot of derivations. This IMF report is integrated by many economists with a lot of effort.
It shows by drawing a diagram that the future is centered on blockchain platforms, not on banks. It argues that the fragmentation of financial markets is no longer a country-to-country fragmentation, but rather the emergence of “digital currency camps,” a complex type of region. It extends Princeton University’s whole theory of digital currency zones in a big way. Now if you talk about the theory of digital currency zones, one of the most important things is this report from the International Monetary Fund in October 2020.
One of the other things that this report says is that it says that digital currencies affect the whole macroeconomic theory, including foreign exchange management, financial stability, regulatory policy, monetary policy, capital flows, macroeconomic policy, legal frameworks, structural policy. One of its very important points is that digital currencies will have a huge impact on macroeconomics. It has long been argued that digital currencies have no impact on macroeconomics, monetary policy, or banking, and it has always been argued that digital currencies are an engineering project. But in October 2020, the International Monetary Fund said that this is a “historic and unprecedented change”, all of these will affect, this is a once in three hundred years financial reform, this reform may be one or two decades are difficult to digest.
The International Monetary Fund suggested that if a country’s currency does not work, then to develop and deploy CBDC is unable to cancel the digital foreign currency alternative imagined. And the risk may be even greater because this country’s CBDC may be sold short overseas, causing the corresponding fiat currency to fall sharply, so the IMF believes this is not a simple matter.
The U.S. released some data in 2020 that showed that a lot of foreign currency is now sloshing around everywhere via bitcoin. Granted, there are systems in place for foreign exchange management, but those systems are sometimes impotent when it comes to digital tokens. There are empty systems, but they can’t actually be implemented – a key message from the IMF’s 2020 report. In addition to having a system, you need to have technology to make it work. This was heard by the IRS, who contracted with a major U.S. technology company to begin implementing the U.S. system.
- Previous analysis and forecasts
We re-analyzed the BoE CBDC developments in October 2019 before the US had even replied to the BoE Governor. We reread the Bank of England’s previous reports and came to the new conclusion that the Bank of England has long been deploying this thing, which is using digital currencies to reposition the world’s multinational currencies. Back in 2019, we listed new macroeconomics and trading technology as number two of the top ten directions for digital currencies, and at the time we consulted the macroeconomics literature for this and found that none of them discussed the digital currency issues that we are now encountering; they were all discussing traditional issues and rarely touched on new issues, so we predicted that a new economic theory would come out.
- Other English references
Rogoff’s short article talks about platforms being important to give the US more insight, and also about how world finance is partitioned, with compliance zones, dollar zones, and other zones, and that world financial markets are thus split. rogoff says digital currencies will change monetary policy and change the financial system, and that digital currency platforms are crucial . That short article is short, but all three points of the digital currency zone theory are there. He also suggests how to underground the economy, a strategy that the U.S. did later adopt.
- Markus Brunnermeier, H. James, J. P. Landau, Digital Currency Areas, July 2019Original Article
- Mark Carney, The Growing Challenges for Monetary Policy in the Current International Monetary and Financial System, August 23, 2019. This article cites the Digital Currency Areas article, which argues that 1) cross-border payments determine reserve currencies; and 2) future financial market fragmentation
- Kenneth Rogoff, High Stakes of Coming Digital Currency Wars, Nov. 11, 2019. this short article argues that 1) digital currencies determine international financial status; 2) platforms matter; and 3) financial market partitioning
- Brooks, How Unbundling and Decentralizing are Reshaping Banking and Financial Services, International Banker, Dec. 3 , 2020. This article argues that digital currency liquidity drives financial market reform and institutions become more profitable
Some important digital currency zone theory articles
The former U.S. Treasury Comptroller of the Currency (Brooks) wrote an article that I translated into Chinese and published on Xinhua Finance on December 3, 2020. His article is one of the most optimistic, sunny and joyful articles on the theory of digital currency zone.
People generally feel serious when they hear about digital currency, but he said that digital currency is beneficial to us, and we can still make profit. He says we don’t need to be afraid, this reform is beneficial to us, and it’s only harmful if we don’t reform.
- The digital foreign currency substitution phenomenon
The phenomenon of digital foreign currency substitution is analyzed as a traditional currency phenomenon because the phenomenon of digital foreign currency substitution has not yet emerged. This is the viewpoint put forward by the International Monetary Fund. The report says that if there is a foreign currency substitution phenomenon, 30% of currencies will be substituted within a year, and it is a serious issue that the foreign currency cannot be removed after 10 years. The report says that in the case of digital currencies, the substitution phenomenon may be more rapid.
The report also said that if the national currency is strong, the development of stable currencies and digital currencies is instead harmful, the reason is that there is a large amount of currency in the overseas market, because digital currencies are global currencies, and since there is a large amount of currency out there, it will be more serious if it is sold short overseas (at home, it is still easy to control). So, this becomes a serious issue.
Digital tokens are not comfortable in the underground market, and many studies came out around November 2020 indicating that digital tokens would affect the world economy. The IMO report in October did not analyze and find that Bitcoin could attack the dollar, and in fact the subjects of such an analysis included Morgan Stanley, BlackRock, and us. This is suddenly turning into a kind of ternary currency competition, something that will become more serious if digital tokens replace fiat currencies, replace stablecoins, or replace central bank CBDCs, because digital tokens are very difficult to remove. This is something that the FATF and IMF have not recognized, and this phenomenon is much more serious than the stablecoin phenomenon.
Traditional foreign currency substitution phenomenon
30% of national currencies are replaced in about a year, and in 10 years it will still be difficult to remove
- Bitcoin has compliance and underground market characteristics at the same time
Bitcoin has not changed, but the financial markets have changed their views on it, because now the regulatory technology is much better than before, especially after 2020, the US regulatory technology is really much stronger, it collects a lot of data, and now the views on bitcoin are completely different from the views on bitcoin half a year ago. And now the U.S. and many countries have legalized bitcoin, or at least semi-legalized it, so bitcoin is starting to comply, but it still has the characteristics of an underground market, and that underground market characteristic is not going to be removed anytime soon, so it’s become a peculiar phenomenon.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/why-digital-currencies-make-the-u-k-and-u-s-look-like-enemies-frontier-experts-demystify/
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