Wang Yongli believes that Bitcoin can only be an asset and not a true currency, while stablecoins can only be tokens pegged to currencies.
Written by: Wang Yongli
In the current phase of credit money, without the injection of monetary credit, there can be no true credit currency. The idea of returning to a metallic standard or re-anchoring currency is a disregard or misunderstanding of the essence and development logic of currency; it is a regression rather than progress and is bound to fail!
Recently, experts and scholars have been categorizing decentralized cryptocurrencies like Bitcoin, stablecoins pegged to national sovereign currencies (such as USDT, USDC pegged to the US dollar), and central bank digital currencies (CBDC, such as digital yuan) under the umbrella of "digital currency" or "cryptocurrency." They believe that these are all new forms of digital currency supported by advanced encryption technology and blockchain distributed ledger technology, operating efficiently and globally on the internet, each with its own characteristics.
However, in reality, Bitcoin, stablecoins, and central bank digital currencies are fundamentally different. Equating them all as digital currencies or cryptocurrencies can easily lead to misunderstandings in both theory and practice. It is essential to accurately distinguish them, especially in academic research and written discourse.
What is Currency
To clarify the differences between Bitcoin, stablecoins, and central bank digital currencies, we first need to understand what "currency" really is and accurately grasp its essence and development logic.
Throughout the thousands of years of human society's monetary development history, there are four main stages: natural commodity money (such as shells); regulated metallic coins (gold, silver, copper, etc.); paper money based on a metallic standard (tokens for metallic currency); and purely credit money that is detached from any specific physical commodity. Overall, currency has shown a trajectory of continuously detaching from the physical (specific commodities) towards the virtual (intangible, digital), but it has always served the purpose of facilitating exchange transactions. The essential attribute of currency is as a measure of value, its core function is as a medium of exchange, and its fundamental guarantee is the highest credit or authoritative protection, making it the most liquid value certificate (a claim for exchangeable value) within a certain area. For currency to become the most liquid value certificate, it must receive the highest credit or authority protection (divine right, royal power, or national sovereignty) within the circulation range, which has always been an indispensable fundamental guarantee, not something that is only needed in the phase of credit currency.
It is particularly important to point out that shells, minted coins, and paper money (cash) are all carriers or manifestations of currency, not currency itself. The carriers or manifestations of currency can be continuously improved to enhance operational efficiency, reduce operational costs, and tighten risk control, thereby better supporting exchange transactions and economic and social development. However, the essential attributes and core functions of currency as a measure of value and medium of exchange cannot and do not change.
As a measure of value supporting exchange transactions, the most basic requirement for currency is to maintain the basic stability of its value. This requires the total amount of currency to change in accordance with the changes in the total value of tradable wealth, maintaining a correspondence between the total amount of currency and the total value. From this perspective, using any specific physical commodity (such as shells, bronze, gold, etc.) as currency presents the issue of the natural limited supply of such (similar) physical commodities, which can further limit the quantity available for currency supply and use, making it difficult to fully supply in line with the infinite growth of tradable wealth value. This inevitably leads to a severe constraint on exchange transactions and economic and social development due to the increasing shortage of currency, presenting a typical "curse of physical currency shortage." For this reason, physical commodities (such as gold) that serve as currency or currency standards (publicly promised anchors) must inevitably withdraw from the currency stage and return to their original role as tradable wealth; currency must completely detach from specific physical commodities, becoming a measure of value and value certificate for tradable wealth, while ensuring sufficient supply based on the overall correspondence between the total amount of currency and the total value of tradable wealth. Thus, currency must develop towards intangibility, digitization, account-based (so-called cryptocurrencies, which are essentially encrypted currency accounts or wallet addresses), and intelligence. Therefore, it can be affirmed that cash will eventually withdraw from the currency stage entirely, and equating currency with cash is a mistake!
From this, "credit currency," which develops detached from any specific physical commodity and towards the requirement of overall correspondence between the total amount of currency and total value, is an objective requirement and inevitable result of currency development. To maintain the overall correspondence between the total amount of currency and total value, it is necessary to strengthen currency value monitoring and total amount control, and it requires the highest level of credit or authority protection (dual protection for currency and wealth).
In today's world, the highest credit or authority can only be the sovereignty of the state (or a union of states), meaning that the total amount of a country's currency must correspond to the total value of tradable wealth that can be legally protected within that country's sovereign scope. Therefore, credit currency is also referred to as "sovereign currency" or "legal tender."
The "credit" of credit currency is supported by the overall wealth of the state; it is the credit of the state, not the credit of the monetary issuing institution (such as the central bank) itself. It is inaccurate to say that "currency is the credit and liability of the central bank" now; this only holds true in the phase of paper money based on a metallic standard (thus, the independence of the central bank is greatly weakened, and monetary policy, along with fiscal policy, becomes one of the two major policy tools for national macro-control, needing to serve the fundamental interests of the state). The "credit" of credit currency is also not the credit of the government itself (the government is not equivalent to the state) and is not supported by national tax revenue (national tax revenue can at most only support government debt).
In the case of national sovereignty independence, promoting the denationalization (privatization) or supranationalization of currency (structurally linking and reserving multiple sovereign currencies to create a supranational world currency while coexisting with pegged currencies) is bound to fail. The euro is not a supranational currency but a "regional sovereign currency." After the euro was officially launched, the original national sovereign currencies of its member states completely withdrew and no longer coexisted. Even if global integrated governance is achieved in the future, forming a unified global currency, it can only be a world sovereign currency, not a supranational world currency.
After completely detaching from the constraints of specific physical commodities, the methods of issuance, management, and operation of credit currency have fundamentally changed:
First, credit has become the basic channel and method for currency issuance. The principle is that when social entities need currency, they use the realizable value of the wealth they already possess or will possess within a set time as support, proposing the amount and term of currency they wish to borrow from the monetary issuing institution and guaranteeing repayment of principal and interest as agreed. After the monetary issuing institution reviews and agrees, and signs a loan agreement with the borrower, it can issue currency to the borrower. Credit methods include loans from issuing institutions, account overdrafts, bill discounts, bond purchases, etc.; it is not a gratuitous gift of currency, and borrowers must repay principal and interest as agreed, thus curbing arbitrary currency expansion. Therefore, as long as social entities possess real tradable wealth, they can obtain the currency they need within the realizable value range of that wealth, breaking the curse of physical currency shortage and achieving overall correspondence between the total amount of currency and the total value of tradable wealth, making currency truly credit currency. It can be said that without the injection of monetary credit, there can be no true credit currency.
Second, losses from unrecoverable credit principal and interest need to be promptly identified and loss provisions made. Credit is issued based on the future realizable value of tradable wealth; if the principal and interest can be recovered as agreed, it indicates that the issued currency has not exceeded the wealth value. However, the realizable value of wealth is profoundly influenced by supply and demand relationships, exhibiting significant pro-cyclical characteristics, and is not constant. If the principal and interest of credit cannot be recovered, resulting in actual losses, it indicates that the previously issued currency has exceeded the realizable value of wealth, leading to genuine currency over-issuance, which needs to be addressed by making loss provisions and reducing the profits of the issuing institution.
Third, deposit accounts and transfer payments are increasingly replacing cash and cash payments as the main forms of currency and payment. The currency issued through credit can be directly credited to the borrower's deposit account without the need for cash. After verifying the authenticity of the deposit account, the required payment amount can be directly deducted from the account according to the account holder's instructions and transferred to the recipient's deposit account. This greatly reduces the scale and cost of cash printing, issuance, receipt, and custody, and makes currency transactions traceable, effectively strengthening the regulation of the legality of currency transactions. Thus, deposits (accounts) become a new manifestation of currency, with the total amount of currency represented as "cash in circulation + deposits of social entities in banks." Currently, cash issuance is no longer the main channel for currency issuance; cash is only needed when depositors require it, and deposits can be exchanged for cash. Moreover, deposit transfer payments are continuously improving with advancements in related technologies, evolving from paper vouchers and manual operations to electronic vouchers processed online, and further to digital currency network intelligent processing.
Fourth, the currency management system has undergone profound changes. For example, to prevent a situation where there is only one bank in society, and all credit issuance lacks interbank payment liquidity constraints, which could easily lead to currency over-issuance and threaten the safety of the entire currency system, it is necessary to classify monetary issuing institutions into central banks and commercial banks, managing them separately. The central bank does not engage in credit issuance or other financial services for enterprises, households, or government entities but is mainly responsible for cash management and total currency control (monitoring currency value changes and implementing necessary counter-cyclical monetary policy adjustments, becoming the lender of last resort for credit issuing institutions to adjust market liquidity and maintain the stability of the monetary financial system); commercial banks and other credit issuing institutions provide financial services to social entities, but if excessive credit issuance leads to severe liquidity crises or insolvency, they need to undergo bankruptcy restructuring or be taken over by the central bank. There must be multiple competing commercial banks with interbank payment liquidity constraints, rather than just one.
In a situation where credit is mainly issued by commercial banks and other credit institutions, the central bank is no longer the main issuer of currency; commercial banks and other credit issuing institutions are the true issuers of currency, while the central bank transforms into the entity responsible for the issuance of base currency and total currency control.
Credit currency has completely broken the constraints of the "shortage curse," but in practice, increasingly severe issues of currency over-issuance, inflation, and financial crises have indeed emerged. However, this is not a problem inherent to credit currency but rather a result of people's serious lack of understanding of credit currency (essentially still stuck in the phase of paper money based on a metallic standard) and significant deviations in management. The current ideas of returning to a metallic standard or re-anchoring currency are a disregard or misunderstanding of the essence and development logic of currency; they are a regression rather than progress and are bound to fail!
At the same time, as credit currency, theoretically, as long as the overall correspondence between the total amount of currency and the value of wealth is maintained, the basic stability of currency value and good credit of currency can be upheld, and in practice, it does not require any reserve assets (including gold, Bitcoin, etc.) as support. Even in the case of the United States, despite having over 8,100 tons of gold reserves, since it abandoned the gold standard in 1971, there has been little change, while the total amount of US dollars has been continuously growing, especially after 2001, rapidly increasing to over $90 trillion now, effectively detaching from the support of gold reserves.
Bitcoin can only be an asset and not a true currency.
Bitcoin technically employs advanced encryption and distributed ledger blockchain technology, but at the monetary level, it highly mimics the principles of gold (gold as currency or a currency standard has the widest global reach, the longest duration, and the greatest influence): the natural supply of gold is limited (though the actual supply remains uncertain to this day). Intuitively, it becomes increasingly difficult to mine as time goes on; if we disregard technological advancements, it seems that the new output will decrease over time until it is completely exhausted. Bitcoin, therefore, generates a data block approximately every ten minutes, with the first four years allocating 50 bitcoins per block (owned by the person who first computes the unique standard value for each block), and in the second four years, the allocation per block is halved to 25 bitcoins, and so on, until it concludes in 2140, with a total of 21 million bitcoins. Thus, the total amount of Bitcoin and its phased increments are entirely locked by the system, not allowing for human adjustment, and its control is stricter than that of gold. As a currency, it cannot meet the need for the infinite growth of tradable wealth value. With gold having completely exited the currency stage, Bitcoin, which highly mimics gold, cannot become a true currency. The price of Bitcoin also needs to be expressed in sovereign currency, making it difficult to use Bitcoin as a currency for pricing and settlement in exchange transactions. On June 18, 2021, El Salvador legislated to grant Bitcoin legal currency status within its territory, but the actual operational effect has been far from satisfactory, instead bringing many new problems and facing increasing opposition, leading to a legislative amendment on January 30, 2025, to no longer recognize Bitcoin as legal tender.
The fact that Bitcoin is not a currency does not mean it lacks value, just as gold continues to exist as a precious metal after exiting the currency stage, with spot, forward, futures, and a variety of derivative trading. Its price relative to legal tender has generally maintained an upward trend over the long term, becoming an important safe-haven asset. Bitcoin, as a new digital asset or encrypted asset created using blockchain technology, can also have spot, forward, futures, and a variety of derivative trading as long as it finds application scenarios and gains widespread trust. Moreover, it can be cross-border, online, and traded continuously 24 hours a day, potentially offering greater price appreciation than gold relative to legal tender. However, as a purely chain-born digital asset, Bitcoin's blockchain operates as a highly closed network system (with only "mining" for coin production and peer-to-peer transfers and distributed verification and recording functions, highly separated from the real world, making it difficult to address real-world pain points). While its security is relatively assured, its overall operational efficiency is low, operational costs are rising, and it is mainly applied in gray areas to evade regulation. If it does not receive support from national sovereignty or is subjected to strict regulation, its application space becomes very limited. Once it fails to gain sufficient trust and subsequent funding, its price can plummet significantly, even becoming worthless. In terms of investment risk, Bitcoin far exceeds gold and is fundamentally not "paper gold." Due to the extreme volatility and long-term uncertainty of Bitcoin's price, using Bitcoin as a reserve currency is very dangerous!
As a decentralized (cross-border) highly closed network system, can Bitcoin serve as a central platform for cross-border remittances of sovereign currencies (replacing SWIFT)? This is indeed a question that requires careful exploration.
Since the Bitcoin blockchain network system officially began operating in early 2009, it has been running securely for over 15 years and still maintains security. Compared to the operational systems of sovereign currencies, it has unique advantages of being cross-border, online, and operating 24 hours a day, making it appear to be a potential central platform for cross-border remittances of sovereign currencies. However, the issue is that this requires the operational systems of sovereign currencies to connect with the Bitcoin system, and it must address the exchange of Bitcoin and sovereign currencies between the remitting and receiving parties (currently requiring connection to independent trading platforms to resolve this, and intermediaries linked to sovereign currencies, such as stablecoins, are also needed to manage exchange rate risk). The remittance instructions for Bitcoin need to include globally standardized message content and formats similar to SWIFT to meet the needs of sovereign currency settlement and the underlying transactions. The speed of Bitcoin remittances needs to be significantly improved (currently, it can only process a few dozen transactions per second, which does not meet demand). From these perspectives, Bitcoin faces significant internal and external resistance to becoming a central platform for cross-border remittances of sovereign currencies.
Even if the Bitcoin network system could become a central platform for cross-border remittances of sovereign currencies, it would still only serve as an intermediary similar to SWIFT, and Bitcoin would not become a true currency. Therefore, strictly speaking, Bitcoin and similar assets can only be referred to as "digital assets" or "encrypted assets."
Stablecoins can only be tokens pegged to currencies
Digital stablecoins such as USDT and USDC are essentially tokens pegged to their respective currencies. They emerged as intermediary media and systems in response to the recognition of the legitimacy of cryptocurrencies like Bitcoin and the allowance for 24-hour cross-border trading online, while the existing systems of sovereign currencies struggle to meet such demands. Thus, the emergence of stablecoins is reasonable.
As tokens of sovereign currencies, they cannot be products of decentralization (to evade regulation) like Bitcoin; they must be subject to strict regulation by monetary authorities and regulatory systems, including ensuring that token reserves are sufficient and held in custody by recognized regulatory institutions. They can only be used within the scope permitted by regulation and cannot circulate without limits (otherwise, it would pose a threat to the pegged currency); tokens cannot provide credit, nor can new tokens be created detached from reserve assets; trading of tokens (including derivative trading) must be sufficiently regulated.
The current issue is that the emergence and operation of stablecoins, like Bitcoin, belong to a new phenomenon, and the relevant regulatory laws and actual oversight are not yet sound and rigorous. The rapid extension of stablecoin trading into various derivatives poses significant risks.
Central bank digital currency should be the digitization of sovereign currency
Since the launch of the Ethereum system in 2013, which accelerated the development of cryptocurrency ICOs and rapidly boosted the prices of Bitcoin and Ethereum, claims that blockchain will become a machine of trust, a value internet, and that cryptocurrencies will disrupt sovereign currencies and internet finance will disrupt traditional finance have caused significant upheaval in the international community. How to respond to the impact of cryptocurrencies also became a new focus of high concern at the G20 meeting of finance ministers and central bank governors in 2013, with many central bank governors advocating for the accelerated introduction of "central bank digital currencies (CBDC)." Subsequently, many countries (including China) began to promote CBDC research.
However, since CBDC was hastily proposed in response to the shocks from Bitcoin, Ethereum, and others, there was no preparation in advance, and there were no clear answers to the most fundamental questions regarding its relationship with existing sovereign currencies and financial systems, or whether blockchain technology could be applied to create it. CBDC has remained in an exploratory stage, often unconsciously attempting to leverage Ethereum's blockchain technology, only to discover that it could severely impact the existing "central bank - commercial bank" dual financial operating system, forcing many countries to halt CBDC development. The People's Bank of China proposed in 2017 that it would develop the digital yuan, positioning it as cash in circulation (M0), while still implementing a dual operating system. However, limiting the digital yuan solely to M0 and closely mimicking cash management means it cannot be created through credit (including the central bank not being able to issue base currency using digital yuan), with all exchanges being free and digital yuan wallet deposits not earning interest, severely hindering the accumulation and application of digital yuan. Since the start of its development in 2014, over ten years have passed, and there is still no clear timeline for its official launch. Meanwhile, newly elected President Trump has explicitly stated that he will not promote the development of a digital dollar.
In reality, the digital yuan is the comprehensive digitization of the yuan, not merely the digitization of cash. The term "central bank digital currency" itself is inaccurate because credit currency is no longer the credit or liability of the central bank; it is no longer central bank currency but rather state credit, representing the sovereign currency or legal tender of the state. Additionally, currency is no longer just cash but increasingly consists of deposits (including electronic wallets). Even when the central bank issues base currency, it is not limited to cash; more often, it is directly credited to the deposit accounts of financing parties through credit. Therefore, positioning central bank digital currency as M0 is itself an inaccurate understanding of credit currency, and this positioning will inevitably lead to severe imbalances in the input-output of the digital yuan, making it difficult to implement.
From this, "central bank digital currency" should be referred to as "sovereign digital currency," aimed at promoting the comprehensive digital operation of sovereign currency and quickly replacing the existing sovereign currency operating system, rather than merely pushing for the digitization of cash and maintaining two separate currency operating systems for the long term.
As a sovereign digital currency, it cannot completely borrow from the decentralized currency systems of Bitcoin or Ethereum; it must be a centralized currency system that meets the regulatory needs of national sovereignty. Considering that stablecoins pegged to sovereign currencies (essentially tokens pegged to currencies) have been in operation for over ten years and are becoming increasingly refined and stable, one possible path is to leverage the technological framework of stablecoins to transform sovereign currency, enabling the swift launch of sovereign digital currency to replace stablecoins (eliminating the need for dedicated tokens).
In summary, when comparing Bitcoin, stablecoins, and sovereign digital currencies, it is essential to accurately grasp the essence and development logic of "currency," particularly the accurate understanding of credit currency, to carefully scrutinize and define them correctly. Otherwise, it is easy to blur concepts and lead to significant management errors.
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