China Central Bank Advisor: "Bitcoin As A Currency Could Collapse Entire Economies"

An advisor to China's central bank, Sheng Songcheng, said that virtual currencies like bitcoin are assets but do not have the fundamental attributes needed to be a currency that could meet modern economic development needs. Speaking in an interview with financial magazine Yicai, the PBOC advisors said that the adoption of Bitcoin as a national currency by a country "could lead to its economic collapse."

Sheng Songcheng, a counselor at the PBoC, dismissed digital currencies like bitcoin as assets that lack the value basis of a legitimate currency. "Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms, and does not have inherent value... But I do not deny that virtual currencies have technical value and are a type of asset," he said cited by Reuters. Apparently he is unaware that paper currencies - the type preferred by central bankers - is made of either strings of linen and paper or strings of 1s and 0s, and - while also having no inherent value - can be infinitely created out of thin air.

Sheng, who was the director-general of the Department of Statistics and Research at the People’s Bank of China, holds a PhD in economics from the Shanghai University of Finance and Economics in the 90s. He is currently the professor of economics and finance at a business school in Shanghai.

Sheng warned that the deflationary nature of digital currencies - unlike fiat money there is a hard limit on how much can be reated - would mean that they would not function well as a currency or medium of exchange in modern economies. Expanding on his criticism, Reuters quoted Sheng as stated that "Bitcoin would reach its ceiling of 21 million in 2140. If it is accepted as standard money, that will inevitably lead to deflation and constrain economic growth." Of course, that same feature would assure that consumers' purchasing power does not vaporize every time central bankers make a mistake and unleash hyperinflation.

Think of it as the old fiat vs gold-backed currency debate, only in this case it's bitcoin-based.

His objection is to be expected: after all no central bank wants to be constrained in how much "money" it can print to stimulate inflation in a world where debt/GDP is 327%; and where China's credit creation dwarfs every other central bank. Recall that in the aftermath of the financial crisis, it was China that served as the dynamo of global "growth" as it doubled its total debt over the past decade, something it would be unable to do if there was a hard ceiling on the amount of currency in circulation.

Sheng’s comments come at a time of increased PBOC scrutiny of the country’s bitcoin trading markets starting in January of this year. The regulatory oversight has resulted in a number of significant changes among Chinese bitcoin exchanges including the addition of trading fees, stricter know-your-customer/anti-money laundering norms and the curb of margin or loan-based trading.

However, Sheng’s most stinging criticism of digital currencies was centered on their volatility, alleging “fluctuations in their prices can easily reach 10 to 30 percent” he added according to cryptocoinsnews:

"If a country accepts one of them as its national currency, the entire national economy could collapse due to currency volatility."

Which, however, does not explain why various central banks like the ECB and BOE do hold a favorable outlook on digital currencies. One footnote here is that unlike Bitcoin, the digital currencies envision by central banks would be entirely under their control, in effect simply replacing one form of fiat for another, and better yet, making it digital so there is no place to hide the next time rates go negative.

* *  *

Many governments around the world are still exploring how to regulate and classify bitcoin, whose value surged last month to just shy of $3,000. China has classified it as a "virtual good". Meanwhile, China’s central bank – having opened its digital currency research institute earlier this month – is accelerating its efforts toward launching its own digital currency. As discussed earlier this week, the PBOC completed an early trial of its digital currency on a blockchain late last year.

The opinions offered by the former PBoC official are nothing new when pitted with criticisms of decentralized, state-agnostic digital currencies by other central bankers elsewhere.

Less than a month ago, German central bank president Jens Wiedmann claimed that instant bank payments would put an end to most citizens’ interest in digital currencies like bitcoin. For separate reasons, less than a month ago, Bundesbank president Jens Wiedmann also claimed that digital currencies will "make the next crisis worse."


OpenThePodBayDoorHAL nope-1004 Fri, 07/07/2017 - 20:28 Permalink

Money stores labor and lets you transport it across space and time.So unless money requires work to produce it does not serve its purpose. The minimum wage in 1964 was $1.25, or five silver quarters. The silver value of five silver quarters today is +/- $15.00. This would be a reasonable minimum wage, but the face value of those five quarrters today would not.Bitcoin attempts to address this with "proof-of-work", and the network today consumes approximately as much electricity as Denmark doing this. Unfortunately Bitcoin, like all fiat, contains an element of faith: you must have faith that F2Pool and AntMiner will not collude later today to quadruple the Bitcoin supply.And this leaves aside the question of forks. And the fact that > 900 "digital currencies" exist, nearly all of which took just a few mouse clicks to create.

In reply to by nope-1004

keep the basta… OpenThePodBayDoorHAL Sat, 07/08/2017 - 02:27 Permalink

Bitcoin is not debt based. Every part is mined and paid for. Fiat is debt based and is created out of thin air, there is NO  WORK involved.  That is the real issue. With limited total amount of Btcoin its value can go up so decibits and millibits and such lie in the future. Sure Btcoin has issues with slowness.World Currency re-set happening now. 

In reply to by OpenThePodBayDoorHAL

techpriest OpenThePodBayDoorHAL Sat, 07/08/2017 - 11:23 Permalink

Marx's Labor Theory of Value is false - labor is not necessarily valuable and thus money is not a store of labor. Labor, like any other commodity, only has value if someone else wants it. For example, I once made a software product that took 2,000 hours to produce, but it ended up being a flop and I only made about $2 an hour off it. I have also done less work-intensive products that made much more. My labor did not correlate to the effort, because the value is in what the customer decides is valuable.

Instead, any kind of money is a commodity, and its value, like the value of labor, sits in an open market where the value can increase or decrease.

Now with the above in mind, I do agree that crypto bugs haven't dealt with the question about how one would deal with the infinite supply of crypto overall, which makes valuation difficult. I like the technology and may even take payment in BTC or ETH in the future, but I wouldn't hold it because some XYZ crypto might come along and wipe out whichever coin I am holding.

In reply to by OpenThePodBayDoorHAL

ultraticum UmbilicalMosqu… Fri, 07/07/2017 - 22:01 Permalink

Lots of State worshipping even here on ZH.  Why would you deny a free market in currency?  Let 1000 flowers bloom.  Long gold, silver, lead, and decentralized crypto.  Short Fedcoin.(This Chinese P.h.d is sooooo typical of the brainwashed status quo.  If BTC were indeed to destroy governments . . .  where can I buy more?)Now back to the day traders' vaunted opinions on Bitcoin.  "But but but but what if the global internet goes down in every country at once, forever?"

In reply to by UmbilicalMosqu…

techpriest ultraticum Sat, 07/08/2017 - 11:33 Permalink

Having a PhD myself, I know that many PhDs do not get an education fitting of the title, but instead are super-master-class rule followers and gatekeepers. Very few learn to question everything.

Since this is China, this person was likely asked to write a hit piece, and did. But if they were honest, they would point out that this is not a debate over making BTC a national currency. It's really a debate of giving legal recognition of BTC as a competing currency to a fiat currency. If that happened, then governments really would be in trouble because enough people would choose to take their chances with an alt currency than keep it with a government that is proven to rob your savings through devaluation.

IMO, the article reeks of desperation. They know that the proverbial automobiles (gold-backed debit cards, cryptocoins, blockchain stock trading, distributed manufacturing, etc.) are coming to wipe out their well-entrenched horse cart business (central banks, big-box retail), and they don't like it at all.

In reply to by ultraticum

Offthebeach nope-1004 Sat, 07/08/2017 - 11:48 Permalink

The  post civil war, US had fantastic, Chinese type growth, under state banks and "wildcat" banks.  Of course such free wheeling, Citizen generated banking was, cough cough, "inefficient " and "not modern, or scientific" and had to be centralized, just a little, teeny, weeny bit, just the tip of the dick inserted bit, honest, by our beloved lintpickers and chicken bone readers of The Fed.

In reply to by nope-1004

PersonalRespon… GoldHermit Sat, 07/08/2017 - 13:40 Permalink

"Bitcoin would reach its ceiling of 21 million in 2140. If it is accepted as standard money, that will inevitably lead to deflation and constrain economic growth." <-- isn't that total BS? Can't each coin be broken down into infinite other coin bits, more block-chain bits? Just curious. Seems like BS. If it is BS, then this is another PHD worth fuckall.

In reply to by GoldHermit

Aubiekong Fri, 07/07/2017 - 18:35 Permalink

Every time you transact in the crypto world you are being tracked, noted, and I hope you keep excellent records come tax time... Crypto is a wet dream for total government control....

Raffie shocktherapy Fri, 07/07/2017 - 19:53 Permalink

You can by cryptos person to person if you like. Think its or something like that.America has the most Crypto machines around. Put in cash buy cryptos and xfer to paper wallet or your phone. Lots in Calif and New York. The EU is going nuts with them as well.For exchanges asking for SSN# you would have to ask them and what rules and regulations they are following.Just the way it is right now.If you open a bank account they want your SSN.To buy cryptos get a good wallet. Lots of software and hardware ones and you can use your smartphone as well.In America cryptos are not popular and people still learning about it. Japan, you can do almost everything with Bitcoins. Other countries as well.Anyways, PM are good and will always be good, but RIGHT NOW they are to manipulated. In the future, yes they will be great and to have in hand. So why not have cryptos and PM?Why not cash in on cryptos so you can buy more PM if that is what you want to do. I do not see PM value in America showing true value for years out.Just my input...

In reply to by shocktherapy

techpriest shocktherapy Sat, 07/08/2017 - 11:38 Permalink

It's actually pretty simple - if you have $500, you buy 0.2 BTC at $2500/BTC.

If both $500 and BTC 0.2 can buy a weekend getaway, or a month's groceries, then the number doesn't really matter. For daily transactions you might have milli-BTC (1/1000) or even micro-BTC (1/1000000). It's kind of like how pennies used to be valuable enough that you could buy things for 1 cent.

I do have some concerns with BTC economically, but this particular issue has been resolved already.

In reply to by shocktherapy

techpriest markj113 Sat, 07/08/2017 - 11:41 Permalink

Exactly. If you got in a few years ago, congratulations, you made a lot. If not, there are still tons of ways to make money, so choose one.

I'm still wondering, if BTC goes to, say, $100,000, how will the newly minted billionaires spend that money without attracting attention from the IRS? I would imagine it will look more likesomething akin to winning a billion-dollar lottery - you still won, just not as much as you hoped.

In reply to by markj113

Aubiekong dasein211 Fri, 07/07/2017 - 18:47 Permalink

You are playing checkers, the elite are playing chess.  Do you think the elite who control the planet will allow anything to happen that is outside of their control?  How do you get a populace to adopt a new form of currency?  Easy and willingly is the best way. You make them want it.  Thus enter the cyrpto...

In reply to by dasein211