Currency and Global Currency
本文是《DC/EP — — 人民币国际化的又一次尝试》系列的第一篇。货币史是一个货币技术不断演变的历史，原始的以物易物，再到漫长的金本位，现代的信用货币，与当下涌现出来的无国界货币。本文将回顾货币的历史，回答我们为何需要无国界货币。
This paper is the first of a series of DE/CP. In monetary history, there is an evolution of monetary technology, from the barter transfer into borderless currency. This paper will discuss the monetary history, and answer why we need Borderless currency？
The development of currency
Currency，is the medium of goods exchange, is the medium of value exchange as well. This value comes from common sense, and then there is the universal application of powerful government credit guarantees.
In thousands of human history, the most primitive pattern of transaction is barter, in which people directly exchange their own assets with another person. The next stage is the exchange of high-value items as the medium. At this stage, stones\ shells and even tree branches were used as intermediate exchanges. To keep the value of intermediate exchanges, precious metal becomes the main Composition of exchange as it was difficult to exploit. This is why precious metal becomes the earliest form of money.
The emergence of real currency comes from the fact that the governing body gives credit guarantee to a certain currency. Currency at that time still is a strong value base because of made by one or many precious metals, which makes it hard for currencies to be overissued. To raise more money, the ruler also chooses to reduce the proportion of the precious metals in the money when they face to the crisis, it will cause currency devaluation. But, compared to the modern monetary system, this behavior changes in the monetary value to a limited extent, because the elements of the precious metal in currency become the standard to measure value.
The modern monetary system is born from the complete decoupling of the dollar and gold, which led to the collapse of the Bretton woods system. After that, almost all currencies rely on the credit of issuing body, without the certainty asset valve standard. Many countries claim that their currency-issuing volume based on the liability of state sovereignty or a package of other sovereign currencies. However, these basic assets still based on credit, instead of specific natural scarify items, which determines that the currency value will be infinitely diluted.
The existence of sovereign attributes of currency
Modern money is primarily a bookkeeping system, with paper money as the primary vehicle, no longer supported by natural scarcity items to support its value. On this basis, the value of modern money relies on the subject credit of the issuing subject.
Throughout the world’s current system of currency issuance, it basically relies on national central banks or through authorized private commercial banks to issue. In either system, the issuance of money is subject to sovereign credit, and is also a derivation and manifestation of the sovereign will of the state.
同时，在现代货币的发展中还有一个非常有意思的现象 — — 联系汇率机制。这一机制往往是一些较小的经济体为了方便自身经济发展而采用的，同时也利用挂钩国家的主权信用抵抗一定的经济风险。这些国家或地区没有直接采用挂钩国家的主权货币，而是采用锚定一定的汇率自行发行法定货币。这充分说明了货币的流通有非常明显的主权意义，同时货币发行权对于维护地区金融体系的稳定有着极为重要的价值。
At the same time, there is a very interesting phenomenon in the development of modern money — the linked exchange rate mechanism. This mechanism is often used by smaller economies to facilitate their own economic development, while at the same time using the sovereign credit of the linked country to resist certain economic risks. These countries or areas do not directly use the sovereign currency of the pegged country, but rather issue their own legal tender using an anchored exchange rate. This fully illustrates the very clear sovereign significance of the circulation of money and the value of the right to issue money in maintaining the stability of the regional financial system.
For a sovereign subject (country or region), the right to mint is an expression of the sovereign will of the country/region to issue its own sovereign currency even if the currency does not provide a valid value, which is an absolute expression of sovereign will, which also determines that the currency issued by one sovereign subject cannot be used as sovereign currency or as a medium of daily exchange among other sovereign subjects (except in sovereign bankruptcy or high political risk areas).
What is a borderless currency?
There is currently no uniform definition of a borderless currency. To some extent, a frontierless currency should refer to a currency or asset that can circulate between countries without the backing of specific sovereign credits. Nor are cryptocurrencies without borders a new thing that came about because of blockchain or crypto digital currencies.
从世界货币发展的历史来看，青铜、白银、黄金、珠宝乃至丝绸和瓷器都在某一段历史时期担任了无国界货币的角色，促进了国际贸易的发展。Looking at the history of the development of world currencies, bronze, silver, gold, jewellery and even silk and porcelain have all at some point in history assumed the role of fiat currencies, facilitating the development of international trade.
As a borderless currency, there are several essential features.
Have some credibility as well as users. The value of a currency must first be widely recognized and accepted by its users, on the basis of which a consensus of value can be formed and people will be willing to use it for various economic activities such as trading.
Lower circulation costs. There is essentially no cost for sovereign currencies to circulate within a region, but they cannot circulate across regions. Where cross-regional circulation is required, this implies a higher proportion of the cost of currency circulation. As a frontierless currency, the high cost of traditional sovereign currencies circulating across borders must be catered to and ameliorated in order for there to be more room for survival.
High security. As a frontierless currency, there are bound to be attempts to “create” more money in the existing system by counterfeiting, etc., causing inflation of the currency itself. As a currency, it must have the capacity to combat this “illegal” inflation. At the same time, it is also necessary to prevent existing problems such as theft in the traditional financial system and ensure the security of the monetary system itself.
Has a controlled inflation rate. In a rational economic model, inflation should match or be slightly higher than the growth in asset size to ensure that the purchasing power of money does not depreciate significantly. In reality, the purchasing power of US money has fallen by about 76% since the collapse of the Bretton Woods system, a situation that is unacceptable for a fiat currency, as it would trigger a severe credit crisis.
Facilitate transfer payments. Under the existing monetary system, there are complex processes and procedures for transferring payments between different currencies, even requiring the use of third-party currencies for value transfer, reducing the efficiency of value transfer across the system. For frontierless currencies, the ease of transferring payments is one of its essential features, facilitating users to quickly transfer assets or make payments between countries or regions.
Why need a borderless currency?
In terms of the modern monetary system, there are high conversion and settlement costs between different sovereign currencies. This cost originally existed because of its high transaction costs, which have fallen significantly from their inception in today’s highly advanced computer technology, but this high settlement cost has not been reduced or changed. In a sense, this high cost has become an impediment to further development of the international economy.
So back to the world economic development perspective, there is a growing demand for a frontierless currency, so that economic agents can better retain the fruits of economic development in their own countries rather than paying for currency transactions.