One country, two currencies! Can blockchain-based digital “domestic exchange bills” help the Chinese economy?

Rage Comment : This article is from China Times. The author provides a new idea based on blockchain to solve the problem of super-massive issuance of RMB. At present, in China, including the formal amount on the table, plus all kinds of strange credit debts under the table, both domestically and overseas, it has reached a point where even 100% totalitarian management can no longer control it. And can we learn from the "foreign exchange certificates" of the past and combine the blockchain as a weapon to play a role in turning the tide?

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The next two years will be a critical period for China's political economy, unprecedented in the more than 60 years since the founding of the People's Republic of China, because there is a huge rock that cannot be avoided: the "low-hanging fruits" in China's economic development have all been picked, and what remains are only the high-hanging fruits that are difficult to pick. If you are not careful, you may fall from a height and break your legs.

Just 10 years ago, we could still imagine comprehensive political system reform in China. However, today, this imagination space is almost non-existent. The reason is that if the above-mentioned economic boulder is not removed first, the economic systemic risks brought about by any political system reform may drag down China.

Many outsiders, including political scientists and even some economists, still cannot see the reality: China's economic boulder has been reduced to one factor after the past 10 years, the RMB. The huge amount of RMB issued, including the formal amount on the table, plus all kinds of strange credit debts under the table, both domestically and overseas, has reached a point where even 100% totalitarian management cannot control it. No one, including the highest authority, knows where and when the systemic risks that will affect the whole body will occur if the economic and political system reforms are carried out at this moment, and it is completely impossible to calculate the recoil.

In terms of economic methods, there are many ways out in theory. For example, China can choose to release 30% to 50% of state-owned enterprise shares to attract foreign investment to solve the urgent problem; or, for example, relax the policy of state-owned land to drive domestic and foreign private capital investment. However, these "theoretical" methods that other countries may take fall into the above-mentioned "systemic risk field", so no one dares to propose them, let alone implement them. At present, China can only continue to quench its thirst with poison, and expand fiscal revenue and RMB issuance with a blind eye. However, this is a bottomless pit, and the money cannot reach the nerve endings.

In my opinion, China has only one way left to resolve this crisis, and that is to immediately issue a digital currency for a designated purpose. China has long had experience in issuing parallel currencies, such as the "foreign exchange certificates" in the 1980s, and the B-share market that still exists today, which is traded in the second currency, the US dollar. "One country, two currencies" and the parallel issuance of "domestic exchange certificates" are not new to China. Internationally, it is not a completely unfamiliar practice either. Isn't the American "Food Stamp" also a kind of token?

Today, the economies of all countries in the world actually have some "Chinese symptoms": excessive money supply brings unpredictable systemic risks. However, on the entire planet, only China has the conditions to immediately adopt "digital currency" to solve the problem, because only the Chinese government has the power of authoritarian adjustment across the country, and Chinese society has long surpassed the UK and the US in electronic transactions.

At a stage where blockchain technology is close to maturity, China can issue digital currencies that are 100% verifiable and traceable, that cannot be used by corrupt officials, that cannot be used by local governments, that cannot be violated by designated consumption, and that cannot be used by banks to create excessive credit. The exchange rate with the current RMB is fixed at a one-to-one ratio (this is necessary, otherwise it will cause financial chaos). For example, "welfare coins" that can only be used for medical and educational (or other designated purposes) consumption, or "farmer coins" related to agricultural production and with designated identities. Under China's strict and complete household registration and identity authentication system, and with designated consumption units (such as hospitals, schools, specific enterprises, etc.), these digital currencies can bring about a series of effects such as slowing down the issuance of RMB, controlling inflation, and preventing corruption. If embedded in the salary structure of the public service system or embedded in the salary increase mechanism, through designated uses, it can also ensure the improvement of social qualities such as medical health, education and learning.

The clearing platform technology of digital currency should be a piece of cake for the Chinese government-led banking system. In terms of transactions and payments, even farmers now have three mobile phones, and it should be easy to build a set of APP sensing specifications (or drive an existing electronic payment platform). As for the possible drawbacks of the second currency, such as the "foreign exchange certificate dealers" of the year, it is impossible to happen under the technical characteristics of blockchain that "everything that has been transferred must leave a trace".

If such a domestic closed digital currency system can replace 15% to 20% of domestic currency circulation through the design of its purpose and identity, it should be able to ease the pressure of "issuing RMB to quench thirst with poison" and even ease the "land finance" pressure of local governments, thus removing obstacles for the next step of economic and political system reform.

Blockchain currencies are in the ascendant, with Bitcoin at the forefront. The Chinese government can definitely set different standards (for example, only the government can "mine" and the government tracks the flow of each block). Once the process is smooth, it will not only be "one country, two currencies", but also "one country, five currencies". The key is that it cannot overflow overseas, otherwise it will be another kind of financial crisis.

(The author is the head of a strategic consulting firm)