Blockchain will disrupt the financial industry and is expected to be applied to SDR

According to Hexun.com news, on June 25 , a forum titled "Research on the Dominant Currency Issues in the International Monetary System" hosted by the China New Supply-side Economics Research Institute and the China New Supply-side Economics 50 Forum was held in Beijing. Hexun.com was invited as a special media to cover the entire event.

According to Hexun.com news, on June 25 , a forum titled "Research on the Dominant Currency Issues in the International Monetary System" hosted by the China New Supply-side Economics Research Institute and the China New Supply-side Economics 50 Forum was held in Beijing. Hexun.com was invited as a special media to cover the entire event.

Qiao Yide, vice president and secretary general of the Shanghai Development Research Foundation, said that blockchain technology will have a disruptive impact on the financial industry and is expected to be used to promote SDR . It is relatively easy to monitor cross-border capital flows using blockchain technology. However, Qiao Yide also admitted that blockchain is currently in its early stages and there are many difficulties and consensus that need to be resolved.

The following is the transcript of the speech:

Qiao Yide: Today I will talk about the financial cycle and global financial imbalances. My focus is on global financial imbalances, and the global financial cycle is a starting point. When we held a meeting at the Financial Office last year, I specifically pointed out that the concept of global economic imbalances was always mentioned before and after the financial crisis. At that time, the academic community and the government equated global imbalances with current account imbalances, which was problematic. So, this is the focus of my talk today.

1. The existence and main content of the global financial cycle. The content proposed by Helene Rey at the 2013 conference caused a great shock. The topic was the trilemma or the duality. Her view was the duality, not the trilemma. His research discussed FDI , debt, securities and the Chicago forward futures index (generally considered to be a risk index). Through a large amount of empirical evidence, he believed that there is now a global financial cycle. It includes the amount of capital flow, credit, and prices, and is inversely proportional to VIX . Speaking of the global financial cycle, Helene Rey was not the first to propose it, but his article had a great influence. He found that the Federal Reserve's federal funds rate was negatively correlated with VIX , which is a very powerful indicator for measuring the global financial cycle. Other countries adopt floating exchange rates, but floating exchange rates do not necessarily guarantee independent monetary policies. They will still transfer from financial centers to countries around the world. In other words, there is a floating exchange rate in the trilemma that can isolate external shocks. Now it seems that this conclusion is a bit too much. Especially in the financial crisis, floating exchange rates cannot completely resist external shocks. Of course, it does not mean that floating exchange rates are useless. They are useful, but not as strong as previously believed.

When we economists discuss the Chinese economy, there is a lot of controversy, but we haven't seen a strong disagreement on the trilemma or the binary paradox. Most Chinese economists believe that we are probably in between the trilemma and the binary paradox. Everyone has different opinions. Some say that the trilemma has a corner solution or an internal solution. Recently, an article added a panic expectation. Sometimes it is a trilemma, and sometimes it is a binary paradox. The Chinese economy does not definitely agree with the trilemma or the binary paradox. Most people think there is room for reconciliation.

When it comes to financial crises, the financial cycles of the United States and developed countries are highly synchronized, with a correlation coefficient of 0.9 with many countries, which shows the global financial cycle. In addition, the correlation coefficient of the fluctuations of major assets is also relatively high, from 0.4 before the crisis to 0.7 after the crisis . Major assets include securities investment, asset management, insurance funds, etc. 0.4 is the median, from 0.4 to 0.7 , so the financial cycle is an objective existence.

Second, the global financial cycle is one of the manifestations of global financial imbalance. Let me talk about the relationship between the financial crisis and global financial imbalance. First of all, what is financial imbalance? Let me define it first. The so-called global financial imbalance is the structural and continuous mismatch between the supply and demand of global liquidity. I added two modifiers, "structural". It is not cyclical or mainly not cyclical, but formed by the structure, and it is a continuous mismatch, not a short-term one. What does it mean? Because most of the supply of global liquidity is still provided by developed countries, either through monetary policy or because their financial institutions provide liquidity, but because the global economic structure is slowly changing, more and more developing countries are rising. Now the GDP of developing countries accounts for about 40% of the global GDP , and in some years it has reached 50% , and most of them are at 40% . Their demand is increasingly cross-border, and they are the demand side of global liquidity. But the supply side is not in them. So, this is a structural and continuous mismatch.

Global liquidity can be divided into two parts, one is domestic and the other is cross-border. I will mainly talk about global cross-border liquidity, one is public sector liquidity and the other is private sector liquidity. This involves a question, the creation of money. There may be two theories about how to create it, one is the exogenous nature of money or the endogenous nature of money. Recently, the theory of the endogenous nature of money is quite popular, which believes that money is mainly produced through the private sector and commercial banks. The actual situation may be somewhere in between. For example, QE , the central bank and the Federal Reserve issue so much money. You can't say that it does not provide liquidity. It's just that a large part of this liquidity is in commercial banks and has not reached the real economy. However, you still have to believe that the private sector is an inherent need, which makes it necessary to have money. The public sector is still responsible for issuing liquidity. The combination of the two is the current situation. The public sector is foreign exchange reserves, gold, central bank currency swaps, and SDRs . The private sector is either banks or non-banks. Here I would like to add that according to the data , the liquidity provided by the non-bank sector in the world is increasing. Insurance companies, hedge funds, and asset management are now active and provide liquidity that may have exceeded that of the banking sector.

Second, I mentioned the Federal Reserve earlier. The monetary policy of the G4 , which includes the United States, Japan, the United Kingdom , and the European euro, is a key factor in the formation of the global financial crisis. The interest rate of the Federal Reserve is negatively correlated with the VIX , and it is also a key factor in the formation of global financial imbalances. Therefore, at this point, I view the global financial cycle in the context of global financial imbalances. This cycle is a manifestation of imbalance.

It is obvious that the G4 dominates global finance. In this table, I mentioned the public sector, monetary policy, and the private sector. In fact, the G4 dominates these two aspects. The G4 and other countries in the world have foreign exchange reserves, stocks , bonds, banks, financial assets, and the ratio of financial assets to GDP . You can see that the G4 accounts for more than 50% of all items except foreign exchange reserves . It is obvious that foreign exchange reserves should not be so high, so other countries, including developing countries and other developed countries, account for 83% of the country's foreign exchange reserves . This has always been a clear manifestation of global financial imbalance.

3. The concept of global financial imbalance is of subversive significance. Why? It breaks the habitual and wrong thinking that global imbalance is equal to trade imbalance or current account imbalance. To be honest, in the past, when we talked about global imbalance, we all said current account imbalance. In 2011 , a view was pointed out that most of the chief economists of BIS and their presidents now use the concept of global financial imbalance. Recently, I read an article of IMF that also uses "financial imbalance". In the past, when we talked about imbalance, we meant current account. It breaks such habitual topological thinking.

1. Global financial imbalance is an important reason for the outbreak of the global financial crisis. As you may know, the chairman of the Federal Reserve proposed that East Asia, especially China, has too much savings. Too much money went to the United States, which pushed down the US interest rate. Therefore, the subprime mortgage crisis occurred in the United States, causing the global financial crisis. Europe's global banks are round, and they bring funds back to Europe from American household depositors at very cheap prices. These funds then purchase a lot of American structured products through shadow banks, which are very risky products, and then return to the United States. This has pushed down the US interest rate, rather than the so-called large amount of reserves or funds from East Asia flowing back to the United States. Of course, there are many controversies. Later, the relevant supplementary content was that European funds were transported back to Europe at very cheap wholesale prices at the beginning, and then came back to Europe. Bernanke 's article also mentioned this. Think carefully about why it is proposed to simply equate global imbalances with current accounts. Why is it wrong? Many inflows and outflows of the current account are offset and then the foreign exchange surplus or deficit is said, but in fact, the total amount is more meaningful, not the net amount. If a lot of funds come in all at once, it may push down the interest rate, but may leave immediately in the same year, causing another big turmoil. However, this is the final result, and the answer depends on the total amount.

Our team has also done some analysis based on theirs. We think that the global imbalance includes both the current account imbalance and the capital account imbalance, which is a more comprehensive statement. Let's look at the G20 . There was a sentence at the London Summit that global imbalance refers to the imbalance between trade and capital. After that, all G20 talks about global imbalances and they are talking about the current account. Now I won't mention it, which proves that his concept is wrong or inaccurate. Recently, the current account surplus or deficit between China and the United States is lower than 3% of GDP . But if you look at the global financial turmoil, it is still so turbulent. This also proves that it is not comprehensive to look at the current account imbalance alone. The amount of funds through the current account or trade every year is not comparable to the current cross-border global amount. Below we also have some statistics. From the perspective of total volume, the proportion of capital outflow is greater than the capital inflow. From the perspective of fluctuation, the cross-border capital flow of funds fluctuates greatly. From the perspective of the flow speed of funds, the speed of funds going out through trade is very slow, while other short-term funds come in and go out very quickly, which has a great impact on this. In addition, from the perspective of capital concentration, the funds through trade are all from one company to another, and a large amount of funds are hedge funds, with billions or tens of billions of dollars. In terms of the relationship with the real economy, the current account has a greater relationship with the real economy, while other cross-border funds have a relatively distant relationship with the real economy. Therefore, from the perspective of studying the impact on the economy, entering the imbalance is of course more meaningful. Second, it reveals the root cause of global financial turmoil. Global financial imbalances have led to the lack of a stable state in global finance. Now, there is a report in the recent Financial 40 Forum. Wang Haizhou believes that the currency anchor, this statement can be further studied. This currency anchor does not refer to a currency, but to a whole system. He mentioned it three times. I don’t know why he said it three times. Generally speaking, the currency anchor was the gold standard from 1819 to 1914 , followed by the gold exchange rate against the local exchange rate, and then the Bretton Woods. Generally, the collapse of the Bretton Woods is counted as a period of time. Maurice Obstfeld and Alan.M ’s research shows that large fluctuations are more likely to cause crises. From a political science perspective, proposing this concept can increase our voice in financial affairs. We have changed from being passive to actively proposing it. Based on this concept, we want to reform the international monetary system and solve the problem of reducing global financial imbalances. This is a shift from being passive to being active. The internationalization of the RMB is more reasonable because it can alleviate global financial imbalances.

Fourth, some short-term and long-term measures to mitigate or correct global financial imbalances. The following are some of the issues discussed at the G20 in China this year. I have a suggestion for the indicators to measure cross-border capital. Why? Because cross-border capital includes FDI , stock investment and other investments. In fact, it should not be called stock investment, but securities investment. Other investments are mainly bank loans. Among them , FDI has the lowest volatility. Its short-term loans are 3-12 times more volatile than FDI , which is very high. Therefore, if we want to examine the volatility and the impact of cross-border capital on the economy, it is obviously unnecessary to include FDI . We should use fast-moving capital ( FMC ) or easily liquidated capital ( ECOC ). I talked about this at a panel meeting at an international seminar in London on March 30. Rey was sitting next to me at the time and said he agreed with me very much. At the conference after our group finished, the convener of the group also brought up my suggestion. Since you want to monitor and examine the impact on the economy, there is no need to include FDI . Whether it can be accepted by the entire international community or academia still requires our continued efforts.

The global financial safety net has foreign exchange reserves of 11 trillion and currency swaps of 2.4 trillion. Based on the current maximum value of currency swaps between the six central banks, if all the other six central banks do the same, how much is the value? Finally, we add it up to 2.4 trillion US dollars, 1.3 trillion for regional financial arrangements , and 1.2 trillion for the IMF . The total amount is nearly 15.9 trillion US dollars, equivalent to 20% of the global GDP in 2015. The restructuring and sustainability of sovereign debt can benefit as long as a few people insist on it. Now the so-called collective contract treaty means that as long as the majority of people agree to the restructuring in sovereign loans, no matter what the minority does, this is what is being done now. In addition, the proposal to issue a sovereign currency linked to GDP will reduce the possibility of bad debts. There are two monetary policies for systemically important countries: 4+1+1 , 4 is the G4 , plus China, plus the IMF , and the other 1+1 , the coordination between China and the United States is also relatively important.

Long-term goal, what is the international monetary system? It includes many contents, such as the conditions of international balance of payments, arrangements for cross-border capital flows, and exchange rate system, but the monetary standard is the core, which will determine many things. In the long run, a more balanced multilateral reserve currency system is needed. The changes in the international monetary system are gradual or sudden. Obviously, the impact of various patterns, the outbreak or end of a global war will cause sudden changes. Now there are multilateral reserve currencies. On May 10 , the IMF and the Swiss National Bank held an international seminar on the topic of moving towards a multilateral reserve currency system. From my point of view, this is inevitable, whether you like it or not, it is inevitable in ten or twenty years. In this process, we should pay attention to a smooth transition, monetary policy coordination, and whether it can be similar to the ESM in the end , and whether there can be an arrangement for currency exchange rates. Second, can the euro stand up during this crisis? There is also the internationalization of the RMB. The final result is super-sovereign currency, SDR , and digitalization.

I came here this time. There was an international blockchain summit two or three days ago. I feel that blockchain technology has a subversive impact. Now the Internet is about transmitting information, while blockchain is about transmitting value and assets. This is a concept. Of course, its blockchain is still in a relatively early stage. We are now thinking about whether we can use blockchain technology to promote SDR . We have already started cooperation with a high-tech company in Shanghai in this regard. Of course, there are many difficulties in this, because it is difficult to form a consensus mechanism, but it may be relatively easy to use this technology to monitor the flow of cross-border capital. That's all I have to say. Thank you.