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Reading: a brief history of the central bank and the financial crisis in the past 400 years

Time : 21/07/2021 Author : hxcnr4 Click : + -
        The leading role of modern finance is the central bank. Over the past four hundred years, the central bank has grown from scratch, from weak to strong. From the earliest Swedish central bank to the Bank of England, to the Federal Reserve and the European Central Bank, this gradually emerging "hand of money" has created and redeemed several financial crises and left us many questions. How did the financial crisis come into being? How to avoid the next time? Should the central bank play the role of "lender of last resort"? Who will supervise the market regulator? In the digital financial era, how can we "dance together" harmoniously on the historical stage of finance?. Based on financial knowledge, Xu Jin, a young economist, described the interaction between central bank and economic development since the 17th century through a series of financial events and figures.
        This crisscross is inseparable from its breeding soil and background. From this, we can also see the evolution of financial history, and even the ups and downs of national civilization. With her grand vision and delicate brushwork, she led us through the 400 year financial history, felt the rhythm of the real world economy and interpreted the essence of finance. When it comes to the central bank, many people think of issuing money. In fact, from the previous articles, we can see that the central bank is a product of the last three or four hundred years. The history of money is almost as long as the history of mankind. From gold and silver to shells, from pepper to cigarettes, money exists in various forms. From the beginning of electronic payment vouchers such as PayPal, the debate about whether the new currency can replace the old currency has been surging up.
        In China, Internet finance has once become the fashionable discourse of many traditional bankers. Bitcoin, Libra, Diem and other cryptocurrencies are regarded as the future of currency. Under the rendering of various media, almost no one knows about bitcoin and other cryptocurrencies. So, what is bitcoin? Bitcoin is a cryptocurrency based on blockchain technology. The legendary inventor is Satoshi Nakamoto, who was born in 1949. He is a Japanese American who likes collecting train models, but perhaps he does not exist at all. The price of bitcoin has been rising recently, breaking through $1000 at the end of 2013; In 2017, the price of bitcoin exceeded one ounce of gold, which is a landmark.
        By 2020, bitcoin will rise from the lowest $3801 to the highest $41946, with a price difference of ten times. It is still the same roller coaster market. By the beginning of 2021, it will exceed US $50000 in the first year. The bitcoin boom is accompanied by challenges to the existing mainstream currency system. Bitcoin fans are not willing to just make money. For them, the significance of the bitcoin revolution may be more profound. As the leader of the latest trend, with the help of changes in the times and technical discourse, bitcoin looks so different from the previous alternative currencies, but is it really different in essence?. A few years ago, when bitcoin was just emerging, I attended a conference.
        A bitcoin expert was invited to speak at the meeting. After his speech, a Japanese audience expressed concern about what to do if all bitcoin in the world belongs to one person? The speaker asked a question: has there been a case in human history where all gold belongs to one person?. Looking back on history, it seems that no one monopolized all gold or even most gold. This dialogue reminds me that the similarity between the most fashionable bitcoin and the oldest gold is actually greater than everyone's imagination. Taking bitcoin as an example, digital currency emphasizes decentralization, and gold issuance does not depend on the central bank. Due to its natural existence, its collection exists all over the world.
        Bitcoin emphasizes anonymity. In fact, gold has always been the intermediary of various transactions. In modern times, cash (such as US dollars) has played a similar role. More importantly, both gold and bitcoin emphasize their limitations, even the silver in Chinese history, We all need different forms of "acquisition". Back to the question that we have been asking since the beginning, what is a currency? Is bitcoin really a currency? Narayana kocherlakota, former chairman of the Minneapolis Federal Reserve, once wrote a famous paper money is memory.
        Among them, he compared the characteristics of money and memory. Memory refers to all historical knowledge directly or indirectly related to the past, while money is a fixed supply object that has not entered production and use, and the distribution and use of the two are similar. Therefore, from the perspective of technology, money is equivalent to a primitive form of memory. This leads to a conclusion: is money similar to a central accounting system?. What is the difference between digital currency and modern currency? Some people think it is anonymous, others think it is decentralized, and more players interpret it as a counter to the central bank's money printing. However, from the above comparison, there are hidden similarities between digital currencies such as bitcoin and gold or even strong paper currency.
        If the currency is only an accounting system, it seems that digital currencies such as bitcoin are not different from existing currencies. But when we think deeply, we have new ideas. Hyman middot, a post Keynesian economist in the United States who has been revived in the financial crisis; Minsky has a quip: "everyone can create money, but the question is whether it can be accepted." This brings us back to the fundamental question, why is currency accepted? This sentence shows that the essence of money is credit, even debt, and the key to the creation of money is its acceptability. At present, it seems that digital currency does not have its own central bank, which is a point of concern. However, this is probably not the key. The key is that there is no bitcoin bank, which is the key.
        Back to the core concept of credit, money is not only determined by the central bank, that is, the amount of money is not determined by the central bank's issuance, but is created in response to the activities of the real economy in tens of thousands of transactions. In fact, the intermediary institutions are mainly commercial banks. The private banking system plays a more decisive role than the central bank. In a word, the central bank may be able to print money, but what really dominates money is actually the interaction between the commercial banking system and the real economy. Perhaps when the digital currency banks are more involved in economic activities, we can talk about whether digital currency can replace money.
        From a historical perspective, the rise of cryptocurrencies such as bitcoin has only been more than a decade. In the past decade, bitcoin has become a mainstream topic from the network undercurrent, and in recent years, it has become an investment outlet. The obsession with money in the currency circle makes the traditional securities industry, which originally belonged to the virtual economy, appear to be much more regular and responsible, and the practitioners are nicknamed "financial migrant workers who move bricks". The core of the success of virtual currency is, to a large extent, a legend driven by technological innovation and freedom, and a modern replica of foam stories such as tulip legend and gilding fever & mdash& mdash; Don't get me wrong. In the early stage of any technology, it often needs foam or money. However, it will take time to test whether we can go our own way.
        Blockchain technology certainly has a future, but what role and how this technology is suitable to play are still being explored. Before the exploration is completed, any slogan declaring that it is bound to succeed or fail is just a slogan. It is not foresight, but ignorance and fearlessness. If we do not look at the temporary twists and turns, how can we guess the future of bitcoin and other digital currencies?. The success of bitcoin and other digital currencies in the past is based on one premise, that is, the algorithm guarantees its finiteness. Secondly, it has the advantages of decentralization and anonymity. In fact, looking back on the financial history, these factors played a decisive role in gold becoming the world currency.
        At the beginning of its birth, the belief of coin circle people in bitcoin was consistent with the enthusiasm of gold "fans" in those years, so that the economist Paul & middot; Krugman calls it a bag. Bitcoin and other digital currencies have a similar starting point to the gold currency Road, but the path diverges quickly. The point is that any currency is based on the existence of credit. It is the collective consciousness of all mankind that maintains the belief of gold currency; While those who maintain digital currency are small groups in the currency circle. Although this group is fanatical, it is too small and closed. More importantly, this group's enthusiasm for inventing more kinds of virtual currencies is no less than their passion for bitcoin. It can be said that it is this passion that damages the intrinsic value of bitcoin.
        The truth is that unlike the great practical role of gold in the real world, the vast majority of people in the real world and the vast majority of transactions are outside the currency circle. In any case, bitcoin represents the frontier of digital currency. The multiple crashes of bitcoin will not only be recorded in the history of financial speculation, but also in the history of currency. On a broader level, the disputes within the bitcoin circle also make people think about the underlying logic of currency and monetary policy. In the book "silver Empire", I once concluded that no matter how powerful and brilliant an empire is, it is difficult to avoid the fate of falling from a high place. From gold fanatics who once insisted on holding gold, to today's gold day, it gradually becomes an ordinary commodity; Gold has been de monetized for decades.
        There are similarities in bitcoin's currency journey. Before the big rise of bitcoin,. I assert that the battle of bitcoin will be a battle of faith. "The future will be a process in which believers maintain their faith and skeptics become more suspicious. Without several rounds of foam cleaning for a long time, the two sides will not completely let go.". In addition to the huge rise and fall of the digital currency itself, the figures represent the undercurrent of distrust towards the mainstream central bank, which is actually worth considering. This anti establishment trend of thought is also vaguely related to trump's coming to power. Mainstream institutions seem to have temporarily maintained the original situation before the sharp fall of bitcoin, and the rise of the blockchain behind bitcoin has become a force that cannot be ignored. The struggle between traditional forces and this new force will continue.
        At the same time, one of the original purposes of digital currency is to resist the seemingly uncontrollable currency issuance by the central bank. However, it seems that the currency circle without consensus also faces trust problems. The split of the consensus in the currency circle will not only bring new currencies, but also trigger new indiscriminate issuance & mdash& mdash; In this way, how can virtual currency have the strength to laugh at the central banks that have gradually gained independence?. The birth of digital currency itself can be seen as a rebellion against the global central bank becoming a "printer" after the financial crisis. For central banks, the challenges posed by digital currency obviously exist. They have also started to release official digital currencies, and the people's Bank of China is among them.
        Initially, the Central Bank of China issued DCEP (digital currency electronic payment, Chinese version of digital currency project). Later, it was renamed "e-cny" (Digital RMB). According to the view of the industry, the central bank's digital currency is divided into two types, retail type and batch type. The two scenarios are somewhat different. As for the Central Bank of China, it is generally believed that the central bank's digital currency can partially replace the function of cash (M0) in narrow money circulation. As you know, M0 refers to the sum of the cash on hand of all units outside the banking system and the cash held by residents. Therefore, DCEP can basically be regarded as the digitization of cash, and RMB is freely convertible at 1:1.
        Technically, the central bank's digital currency adopts the two-tier system of commercial banks and central banks, which is consistent with the existing monetary system of sovereign countries in the world, and may not even adopt the blockchain technology. It seems that the central bank's digital currency is similar to Alipay and wechat payment, but there are essential differences in monetary attributes: one is the central bank's debt M0; The other is the liabilities of commercial banks, which belongs to the broad money amount m2. M2 belongs to the cash circulating outside the banking system plus enterprise deposits, resident savings deposits and other deposits. The definition of the digital currency model of the Central Bank of China is not so clear, and the central banks of most countries still take a wait-and-see attitude. Needless to say, the Central Bank of China has a long way to go from the issuance of digital currency to the landing, and then to the final evaluation of success or failure.
        The decentralization of the central bank's digital currency will not be very radical. But there are also some problems, such as how to protect privacy? Another example is that the Central Bank of China often needs to face customers directly. How can it prove that it has the experience of facing customers directly? Former US Federal Reserve Chairman Greenspan and other "old people" also expressed many doubts about the issuance of digital currency by the Central Bank of China. At present, the design of the digital currency of the Central Bank of China is more conservative than that of Alipay, which is thought-provoking. These problems are not only technical problems, but also problems that can be clarified by talking about public or private chains in general. You may wonder why the people's Bank of China should rush to launch digital currency if there are so many unsolved problems? The reason is that it faces competition from digital currencies such as Libra & mdash& mdash; It can be said that the central bank, as a "money printer", needs to fight for the right to define digital currency, "rather than wait for revolution, it is better to reform its own life".
        The story of digital currency has not been finished yet. The central bank's digital currency will eventually appear and even become popular. In addition to the issue of digital currency, there are more underlying stories, that is, blockchain technology. The so-called blockchain is an accounting technology that is jointly maintained by multiple parties, uses cryptography to ensure transmission and access security, and can achieve consistent data storage, hard to tamper, and prevent repudiation. It is also called distributed ledger technology. This also means. By 2021, the concept of meta universe will become popular overnight, and many critics regard it as the key to the future world. Among them, blockchain plays the role of core infrastructure, and digital currency has the possibility of large-scale application.
        From this point of view, the application of digital currency and the blockchain behind it in the meta field has just begun.
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