The Evolution of Currency and the Future of Finance: From Paper Money to Digital Currency, Our Money is "Disappearing"

The Evolution of Currency and the Future of Finance: From Paper Money to Digital Currency, Our Money is "Disappearing"We spend money every day, from personal expenses to the financial operations of businesses and governments. Money never sleeps

The Evolution of Currency and the Future of Finance: From Paper Money to Digital Currency, Our Money is "Disappearing"

We spend money every day, from personal expenses to the financial operations of businesses and governments. Money never sleeps. With the popularity of mobile payment platforms such as Alipay and WeChat Pay, and the rise of digital currencies, the use of physical currency in our lives is becoming less and less common. It emerged from nothing and is now disappearing into "nothing." What is the essence of money? How will the new developments in the concept of money affect the future financial landscape? Will a "cashless society" eventually arrive? The "Pi Pi Wen Ba" invited Xu Jin, a well-known young scholar and economics editor of FT Chinese, to discuss the evolution of currency and the future of finance.

Paper Money: The Advantage of Anonymity, Possibly the "Gold" of the Future

@chalk asks: Does paper money still have its significance? Is it possible for the world to adopt a single universal currency in the future?

Xu Jin believes that in many countries, people still prefer paper money, and its anonymity could become an advantage in the future. For paper currencies of strong countries, it could even become the "gold" of the future. However, it is unlikely that the world will use a single global currency, as it would require not only monetary, fiscal, and economic integration, but also political integration. The development of the Euro tells us that even launching a regional currency is extremely difficult.

Digital Payment: Inflation and Security, Two Major Considerations in Development

@Jiang Shui Han 1998 asks two questions: 1. When people completely switch to digital payment and abandon physical currencies like paper money, will it be possible to avoid inflation caused by an increase in the money supply and deflation caused by a decrease in the money supply? 2. How does digital payment address the threat of hacker attacks?

Xu Jin believes that todays inflation is often not caused by the central bank's issuance of currency, but rather by fiscal and economic policies and the expectations they induce. Therefore, whether or not digital currency is used does not affect inflation. Regarding the security of digital payments, while digital currencies can address most cyberattacks, there have been instances of successful attacks in reality, which is an issue that needs continuous attention.

Electronic Payment: Path Dependence and Development Strategy

@Code can't understand asks: Why do credit cards prevail abroad while electronic payments are more popular in China?

Xu Jin points out that this is the result of path dependence. Credit cards developed earlier abroad and are already mature. Without any major inconveniences, switching to electronic payments seems unnecessary. In China, electronic payments have developed rapidly, with low switching costs and high returns, making it easier to promote.

Digital Currency and Security: Cash vs. Electronic Payment

@Watermelon Coke asks: Older generations always believe that keeping cash under the mattress is the safest way to store it. Is electronic payment safer than cash now? Is keeping money in the bank the safest option?

Xu Jin says that the older generation's practice is based on their life experience, and from their perspective, their actions are perfectly rational. Electronic payment is superior to cash in terms of convenience, but cash has an advantage in privacy, while security is subjective. In the current economic situation, keeping money in the bank is still considered safe. However, the domestic banking industry will experience significant changes in the future, and it may be prudent to be cautious about keeping money in smaller banks. It is advisable to limit deposits in a single bank to no more than 500,000 yuan, which is the limit for deposit insurance.

Currency Depreciation: Ancient Governments Extracted Wealth from the People by Debasing Coins

@Pi Pi Netizen bIB7ne asks: Ancient governments extracted wealth from the people by debasing the currency (mixing base metals into coins). How was this process implemented? In other words, how did the government extract wealth through the difference between the face value and the actual value of the new coin? Additionally, wouldn't simply increasing the minting of coins achieve the same effect? Why choose this specific method?

Xu Jin explains that ancient coin minting generally involved precious metal coins and base metal coins. Precious metal coins, due to their high value, often have a real value closer to their nominal face value. The face value of many currencies was tied to their weight, and precious metal coins actually did not generate significant profits for the government. Newly minted coins, if not adulterated, are essentially the same as old coins, generating minimal profits for the government. Ancient governments often used methods such as mixing base metals and minting thinner coins, creating a discrepancy between the real value and the nominal face value of the coins. The difference was the government's profit. The goal was for the government to extract wealth from the people discreetly and in large amounts. The less people discovered the adulteration, the longer it could continue. Conversely, if people detected or refused to accept the adulterated coins, it would be a problem for the government. Therefore, the method had to be as covert as possible to sustain it for an extended period.

Digital Currency and Law: A Game of Development

@Mukden asks: Digital currency clashes with the laws of most countries, and the currency of a country using digital currency will not be able to become an international currency. This is because digital currency requires the provision of personal privacy and is subject to surveillance, which conflicts with the laws of most countries. Many countries also do not use electronic payment.

Xu Jin believes that there is indeed a game of development between digital currency and the law. There are many types of digital currencies, some of which may require linking to personal information, but many others have anonymity as their key advantage. Not to mention, the emerging digital currencies in the market, if issued non-officially, have a characteristic of being transnational.

Digital Currency and Value: Binding and the Market

@Jiang Shui Han 1998 asks: I would like to ask whether digital currency needs to be tied to real-world precious rare materials like oil and gold in terms of value, just like the US dollar? For example, is the issuance of digital currency still related to the country's gold reserves?

Xu Jin points out that this is determined by the market, and most market participants currently do not believe that it is necessary. Even if it needs to be tied, it is likely to be tied to the national fiat currency, such as the digital fiat currency launched by the central bank.

The evolution of currency and the future of finance are complex and ever-changing topics. From paper money to digital currencies, our money is "disappearing," but the underlying essence and value still exist. As technology continues to develop, the future financial system will face more challenges and opportunities, and we look forward to witnessing the future evolution of money.