Refuting "Central Bank Sheng Songcheng: Bitcoin and other virtual currencies are not currencies in essence"

Bitcoin is a better currency than credit currency - refutation of "Central Bank Sheng Songcheng: Bitcoin and other virtual currencies are not currencies in essence"

Chapter 0 Introduction

The author of the article "Central Bank Sheng Songcheng: Bitcoin and other virtual currencies are not money in essence" (hereinafter referred to as "Central Bank" article) has a big title, and Baidu Encyclopedia shows that he is a prominent person. This article is long and rambling, but the logic is confusing and the conclusion is ridiculously wrong. This article reviews it paragraph by paragraph.

(Photo: Sheng Songcheng, Director of the Survey and Statistics Department of the People's Bank of China)

Chapter 1 Introduction

According to the article "Central", the history of virtual currency is discussed at the beginning, which leads to the topic of Bitcoin. There is nothing wrong with this.

The author directly puts forward the conclusion in the preface:

In fact, judging from the essential characteristics of currency and its development history, virtual currencies represented by Bitcoin are not currencies in essence and it is difficult for them to become currencies.

Let’s look at the author’s discussion below.

Chapter 2: The article "Central" refutes the three cornerstones of Bitcoin

The author of the article "Central" points out that the basic function of currency is "medium of exchange of commodities."

Serving as a medium of exchange for commodities is the essential attribute and most basic function of money, and it is also a distinctive feature that distinguishes money from other things, especially under the conditions of credit currency.

At the same time, the author discusses his monetary theory through three major paragraphs. These three paragraphs are the first cornerstone of the author's refutation of Bitcoin: Marx's definition of currency.

I will not comment on Marx’s theory for now, and will continue reading the original text.

The author then used four paragraphs to discuss the birth principle of currency and the birth process of modern currency (i.e. paper money), and then explained that the issuance of paper money is based on national credit. This formed the second cornerstone of the author's refutation of Bitcoin: national credit is the basis for issuing currency.

National credit is the basis of the state's monopoly on the right to issue currency.

The author then used 5 paragraphs to describe how the country uses monetary policy to influence the national economy after controlling the currency. And concluded the author's third cornerstone of refuting Bitcoin: as long as the country exists, the country must use credit currency to regulate the economy.

As long as the state as a form of social organization does not undergo fundamental changes, the monetary system based on national credit will always exist.

Chapter 3: The Central Bank article begins the attack on Bitcoin

After expressing its three cornerstones, the author began to refute Bitcoin.

1. The author claims that Bitcoin does not have cornerstone 1, and argues this point from three perspectives:

First, the author believes that Bitcoin cannot fulfill its function as a medium of exchange if it cannot obtain national recognition. ( This article marks this as the author's reasoning 1)

If a country declares Bitcoin to be illegal currency, Bitcoin will not be able to circulate within that country, nor will it be able to serve as a medium of exchange, and may even be worthless.

The author then claims that even if Bitcoin can be circulated now, its circulation is limited and unstable due to the lack of national support.

It can be seen that due to the lack of national coercive support, the circulation scope of Bitcoin is limited and unstable, and it is difficult to truly play the role of a circulating payment method.

Finally, the author claims that Bitcoin is fungible because it is difficult to fix it as a general equivalent.

Bitcoin has neither unique natural properties nor exclusivity or uniqueness granted by law. Therefore, it is easy to be replaced and it is difficult for it to serve as a general equivalent and become a medium of exchange for commodities.

(II) The author claims that the number of Bitcoins has an upper limit and cannot have cornerstone three. That is, it is determined that deflationary currency cannot regulate the economy. ( This article marks this as the author's reasoning 2) The author discusses this point from two aspects:

First, the author claims that the limited number of Bitcoins cannot adapt to the expansion of the social and economic scale.

There is a contradiction between the limited number of Bitcoins and the ever-expanding social production and commodity circulation. If it becomes the standard currency, it will inevitably lead to deflation and inhibit economic development.

Secondly, the author claims that the limited number of Bitcoins will make them an object of speculation.

The limited quantity greatly reduces the function of Bitcoin as a means of circulation and payment, making it more likely to become an object of speculation rather than a medium of exchange.

(III) The author claims that Bitcoin cannot be intervened by the central bank and conflicts with the paper currency system, which violates the second cornerstone. (Inference 3) The author uses one or two aspects to illustrate this point:

First, the author believes that if there is no intervention in the issuance of Bitcoin, the price fluctuations will be too large.

Bitcoin has no centralized issuer and is prone to over-hype, leading to excessive price fluctuations.

Secondly, the author claims that Bitcoin is not controlled by monetary authorities and cannot serve as a means of economic regulation.

Bitcoin is not controlled by monetary authorities and can hardly serve as a means of economic regulation.

Chapter 4: The Central Bank digs up the ancestral grave of Bitcoin

At the end, the author did not forget to dig up the ancestors of Bitcoin and completely denied Hayek's theory.

(I) The author claims that privately issued currency lacks a solid credit foundation, which violates cornerstone 2. (Deduction 4) The author argues this point from two aspects.

One is that the author believes that private credit is inferior to national credit.

Private currency based on the credit of private issuing banks is difficult to replace national currency based on national credit, which is legal and compulsory.

Then the author believes that private currency issuance will take advantage of information asymmetry and issue currency indiscriminately.

Second, due to information asymmetry, the credit of private note-issuing banks lacks effective constraints.

(ii) The author claims that multiple currencies cannot exist in the same economic system at the same time. (Reasoning 5) This violates cornerstone 1. The author proves his point in two ways.

First, the author believes that the inconsistent value standards of various private currencies lead to inconsistent currency exchange rates.

The inconsistency of currency value standards and the resulting inconsistency of currency exchange rates will cause disorder in the price system and chaos in the economic system.

The author then claims that if multiple currencies were to circulate simultaneously, exchange would become chaotic.

The simultaneous circulation of multiple currencies and the change in exchange rates at any time as the currency values ​​change will cause uncertainty in pricing, bringing inconvenience and losses to economic activities.

(III) The author claims that private money cannot play the role of regulating the economy. (Reasoning 6) This violates cornerstone 3. The author argues this point in three ways.

The first is that the author believes that private investors cannot control the money supply.

Due to the existence of credit creation by non-issuing banks, it is difficult for issuing banks to control the entire money supply.

Then there is the author’s claim that private banknote issuance cannot regulate the money supply.

The issuing banks found it difficult to cope with large-scale redemptions and sharp increases in currency demand.

Finally, the author claims that even if private currency issuance can regulate the money supply, it cannot achieve price stability.

Price stability cannot be achieved by regulating the money supply alone.

The author finally came to the conclusion that:

As long as the modern economic and social organizational form does not undergo fundamental changes, the monetary system based on national credit will exist, and Bitcoin and other virtual currencies will not be able to become a country's standard currency.

Chapter 5 Refutation of the Three Cornerstones

The author's writing logic is relatively clear. He first establishes a theoretical foundation and then draws conclusions through reasoning. Unfortunately, the author's three major cornerstones are all flawed without exception.

Marx's economic theory has long been criticized by the academic community. The author's asking Marx to endorse it really ignores the teachings of a former president - to keep pace with the times. The author has even forgotten the famous saying of a former president - to have a scientific outlook on development.

However, the author's citation of Marx's definition of money, although academically unremarkable and far inferior to Mises's recursive principle of money, cannot be said to be wrong. Unfortunately, the author completely misunderstood Marx's definition of money.

First, let's understand what "general equivalent" is: general equivalent is a measure of value for other commodities separated from many commodities. This definition directly shows that money itself is a commodity. However, the author believes that this concept means to emphasize the function of money as a medium of exchange. Although there is nothing wrong with the author's understanding, the author's subsequent remarks are too unauthentic. The author borrowed Marx's definition of money to attack Friedman's definition of money. The author judges from this definition that the value attribute of money should serve the function of a medium of exchange.

The function of money as a store of value is only a natural derivative of its function as a medium of exchange.

This inference directly denies Marx's belief that money is a commodity. Marx's definition is that something is first a commodity, and then it can be a currency with the function of a medium of exchange. However, the author believes that the latter comes first, and the former can only be a subsidiary attribute of the latter.

If what the author means is true, gold has now withdrawn from the daily commodity trading market, so gold is no longer a currency.

The author's intention in misinterpreting the theory of "general equivalent" is to endorse paper money. Because paper money has no practical value, if it is not regarded as currency, then paper money cannot exist as a commodity. However, the author can conclude that money only needs to be a medium of exchange, and does not need to be a commodity. This is the underlying logic of the government printing money.

In fact, according to Marx's definition, paper money is not the currency itself, but merely serves as a measure of value and a means of circulation instead of currency. However, the value of the commodities behind the paper money is supported by gold - the gold standard (it was still the gold standard at that time).

The second cornerstone of the author is that national credit is the basis for issuing currency. I don't know how the author has the nerve to write such an obvious absurdity! It is well known that the basis for the issuance of "national credit currency" is national credit, but this only means that the issuance of credit currency requires national credit. What about metal currency? Does the issuance of gold also require national credit? Obviously not! In addition, currency existed before the concept of the country appeared. When we humans used shell money, there was no country at all. When Qin Shihuang unified the weights and measures, the people and the government had not created the term "national credit" at that time. The author elevates credit currency to the essence of all currencies. This kind of logical confusion is simply deliberate deception. On this point, we have every reason to prove that the author is a liar.

The author's third cornerstone is to identify the national monetary policy as the main means for the country to regulate the economy, and claim that as long as the country exists, credit currency will definitely exist. As a government official, the author will of course praise the government's actions, but it is well known that the result of monetary policy regulating the economy has always been to rob the poor and help the rich, disrupting the allocation of social resources. Through inflation, the wealth of our people is robbed, and low-interest loans are issued to state-owned enterprises to feed social parasites to produce low-quality scrap copper and iron that no one wants.

In addition, the author claims that credit money will exist as long as the country exists, which is not true. First of all, the country has existed on this earth for more than 2,000 years, but how many years has credit money existed? It has been less than 100 years since the collapse of the Bretton Woods system. And has the author not seen the European Union? Isn't the euro zone a super-sovereign currency? Although the euro is still a credit currency, it is no longer a credit currency issued by a certain country. The people of Zimbabwe no longer want the currency issued by the government itself, but the state power still exists.

From the above, we can see that the three cornerstones listed by the author are all unreliable. The author's entire article has lost its foundation . I could have stopped writing at all, but I will still continue writing to see how ridiculous the author's inferences are.

Chapter 6 Refutation of Reasoning 123

Reasoning 1: The author believes that Bitcoin is doomed to fail to perform the function of a medium of exchange because it cannot be recognized by the state. This is a lie.

What are the facts:

At present, Bitcoin has been legally recognized by the vast majority of governments, including the United States, the European Union, Japan, Australia and other countries with the most developed and largest economies in the world.

Currently, there are more than 100,000 merchants that accept Bitcoin as a medium of transaction, including many of the world's largest companies such as Microsoft, Google, Dell, PayPal, etc.

The essence of currency is consensus. As long as someone recognizes Bitcoin as currency and is willing to use Bitcoin as a medium of exchange, it can be currency. There is no need for any country to do anything.

The author mentioned that the Bitcoin code is replicable and therefore the upper limit is meaningless. In fact, the author only saw that the code is replicable, but the user population and economic ecology are not replicable.

Reasoning 2: The author believes that there is an upper limit to the number of Bitcoins because they cannot regulate the economy.

The government always thinks about how to manage the economy. In fact:

The government has no effective means to know whether the economy is good or bad until a large-scale economic crisis occurs. The result of government control of the economy is basically a country in trouble and a poor people, just look at the Soviet Union and China before the reform and opening up.

There are too many theories and facts to refute government regulation of the economy.

The economy itself is a system that does not need government regulation, and there is no reason for Bitcoin to assume the function of regulating the economy. Just leave everything to the free market.

The author claims that if there is an upper limit, it is impossible to correspond to the ever-expanding total social production. Why not? Just raise the price.

Reasoning Three: The author claims that the central bank cannot interfere with the issuance of Bitcoin, which conflicts with paper currency.

Bitcoin itself is a decentralized existence, born without any connection to the government, which is an important premise for Bitcoin to survive. So even if Bitcoin conflicts with paper money, what can it do? The government can do nothing about it. On the contrary, Bitcoin will not have a life-and-death conflict with paper money, but Bitcoin will make paper money better, because Bitcoin will be a competitive existence to restrain the government from overissuing paper money. As long as the government dares to overissue currency, the people can use Bitcoin to express their opposition. Even if they are not optimistic about Bitcoin, they can use Bitcoin to break through foreign exchange controls and exchange it for other countries' currencies at will.

The author mentioned that without the central bank’s control over the issuance, the price of Bitcoin will fluctuate greatly. I don’t know what kind of logic this is. The large fluctuations in the price of Bitcoin are due to the large fluctuations in demand and supply, and the fact that the entire capital pool is not large enough. In addition, how can the fluctuations of the currency issued by the central bank be small? Don’t forget the price breakthrough in 1988 in mainland China, when the RMB depreciated almost instantly to the point that people would rather have matches than paper money, and don’t forget the Asian financial crisis in 1998.

Chapter 7 Refutation of the Author's Digging Up the Ancestor's Grave

First of all, I want to state that Bitcoin is not based on Hayek's private competitive currency. But the author does not understand and forcibly pulls out Hayek to whip his corpse. Hayek's private competitive currency theory is a theoretical system based on the free market, in which powerful institutions such as private banks and large enterprises issue their own currencies and then compete in the market. But Bitcoin is not like this. Bitcoin is a currency that everyone can participate in with the right to issue. It is not that everyone issues multiple currencies to compete. There is only one Bitcoin. Instead, the issuer follows unified rules to issue the same currency.

Reasoning 4: The author claims that privately issued currency lacks a solid credit foundation. In fact, the Federal Reserve is a private bank. The author completely denies that the credit of private individuals in the free market is much higher than that of government organizations whose credit cannot be implemented on a certain person. Because the funding of government organizations is not from civil servants themselves, but from taxpayers, while the funding of private individuals is their own. In the free market competition, if the government fails, it will not be paid by civil servants, but by taxpayers, but if private competition fails, it will be ruined.

The author also mentioned that information asymmetry leads to excessive issuance of private currency. The same is true for the government. Can the government be more powerful than private individuals in obtaining information? We all know that civil servants are the least efficient workers in the world. In addition, we have not found any country that does not issue credit currency excessively.

Reasoning 5: The author is against multiple currencies coexisting in the same economy. It's just that the author is narrow-minded. If we look around the world, there are more than 200 kinds of banknotes in the economy of the earth! Isn't it running well?

In addition, we Bitcoin enthusiasts are the ones who have the ideal of unifying the world's currency.

Reasoning 6: The author is thinking about regulating the economy. Please refer to the process of refuting Reasoning 2.