Wang Yongli: Bitcoin, stablecoins, and central bank digital currencies should not be lumped together
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Wang Yongli: Bitcoin, stablecoins, and central bank digital currencies should not be lumped together
Wang Yongli believes that Bitcoin can only be an asset rather than real money, and stablecoins can only be tokens pegged to currencies.
Navigating Web3 tides with focused insightsBy Wang Yongli
In the current credit money era, without monetary credit creation, there can be no true credit currency. Any attempt to revert to a commodity-backed monetary system or to re-anchor money is a disregard or misunderstanding of the nature and evolution logic of money—it represents regression, not progress—and will inevitably fail.
Recently, some scholars and experts have grouped Bitcoin and other decentralized cryptocurrencies, stablecoins pegged at fixed rates to sovereign currencies (such as USDT and USDC tied to the U.S. dollar), and central bank digital currencies (CBDCs, such as digital RMB) under the umbrella term "digital currency" or "cryptocurrency." They argue that all these are new forms of digital currency enabled by advanced cryptography and blockchain-based distributed ledger technology, capable of efficient global operation over the internet, differing only in characteristics.
However, Bitcoin, stablecoins, and CBDCs are fundamentally different. Equating them and collectively labeling them as "digital currencies" or "cryptocurrencies" easily leads to theoretical and practical misunderstandings. Especially in academic research and written discourse, precise distinctions must be made.
What Is Money?
To clarify the differences among Bitcoin, stablecoins, and central bank digital currencies, we must first understand what "money" truly is—grasping its essence and developmental logic.
Throughout thousands of years of human monetary history, four major stages can be identified: natural commodity money (e.g., seashells); standardized metallic coinage (gold, silver, copper, etc.); paper money under a commodity standard (representing metallic currency); and purely fiat credit money detached from any physical backing. Overall, money has followed a trajectory of moving from tangible (physical detachment) toward intangible (dematerialization, digitization). Yet it remains fundamentally a tool for exchange. The essential attribute of money is value measurement; its core function is medium of exchange. Its ultimate guarantee lies in the highest level of trust or authority (divine right, royal power, or national sovereignty), ensuring that money functions as the most liquid value token (a claim instrument for exchangeable value) within a given jurisdiction. For money to serve as the most liquid value token, it must be protected by the highest trust or authority within its circulation sphere—a foundational requirement that has existed since the beginning and is not something newly required only in the credit money stage.
It's crucial to note: seashells, coins, and paper notes (cash) are merely carriers or representations of money, not money itself. These carriers may continuously evolve to improve efficiency, reduce costs, strengthen risk controls, and better support trade and socioeconomic development. However, the fundamental attributes and core functions of money—as a unit of account and medium of exchange—have not changed and cannot change.
As a measure of value facilitating exchange, the most basic requirement for money is maintaining relative stability in its value. This necessitates that the total supply of money correspond dynamically with the total value of tradable wealth, preserving an overall balance between money supply and underlying value. From this perspective, using any single or limited set of physical commodities (like seashells, bronze, or gold) as money inherently suffers from natural scarcity. Their availability as money becomes increasingly constrained, unable to keep pace with the potentially infinite growth of tradable wealth. This results in persistent monetary shortages—an affliction known as the “commodity money scarcity curse”—which severely restricts trade and socioeconomic development. Precisely because of this, physical commodities like gold must eventually exit the monetary stage and return to their original role as tradable goods. Money, in turn, must fully detach from physical form and become a value measure and value token for tradable wealth, supplied sufficiently based on the total value of available goods. Thus, money inevitably evolves toward dematerialization, digitization, account-based systems (so-called "cryptocurrencies" are essentially encrypted accounts or wallet addresses), and intelligent automation. Therefore, it is certain: cash will ultimately disappear from the monetary scene just like seashells and metal coins did before it. Equating money solely with cash is incorrect!
Hence, credit money—developed objectively to meet the need for a flexible money supply aligned with the total value of tradable wealth—is the inevitable outcome of monetary evolution. To maintain alignment between money supply and real value, robust monitoring of purchasing power and active control over money supply are required, along with protection from the highest level of trust or authority (requiring dual safeguards for both money and wealth).
In today’s world, the highest level of trust and authority resides exclusively in national (or supranational) sovereignty. A country’s money supply must correspond to the total value of wealth legally protected within its sovereign jurisdiction. Hence, credit money is also called national “sovereign currency” or “legal tender.”
The “credit” in credit money refers not to the creditworthiness of individual issuing institutions (such as central banks), but to national credit backed by the entire nation's wealth. It is therefore inaccurate to say today that “money is the liability and credit of the central bank.” That was only valid during the commodity-standard paper money era. As a result, central bank independence has been significantly reduced, and monetary policy—alongside fiscal policy—has become one of the two primary macroeconomic tools serving national interests. Furthermore, the “credit” in credit money does not refer to government credit per se (governments ≠ states), nor is it backed by tax revenues (which at best secure government debt).
Under conditions of national sovereignty, attempts to de-nationalize money (privatize it) or create a supranational currency (pegged structurally to multiple sovereign currencies while coexisting with them) are doomed to fail. The euro is not a supranational currency but a “regional sovereign currency”: upon its introduction, member states’ original national currencies were completely withdrawn and ceased to circulate. Even if global governance were unified in the future, resulting in a single world currency, it would still be a world sovereign currency—not a supranational one.
Once freed from physical constraints, the issuance, management, and operation of credit money undergo fundamental changes:
First, credit becomes the primary channel and method of money creation. The mechanism works as follows: when economic agents need money, they pledge existing or future income-generating assets as collateral and apply to financial institutions for loans specifying amount and duration, promising repayment with interest. Upon approval and signing of loan agreements, the institution credits the borrower’s account. Credit includes bank lending, overdrafts, bill discounting, and bond purchases—not gifts. Borrowers must repay principal and interest, curbing arbitrary expansion of the money supply. As long as individuals or entities possess genuine tradable wealth, the necessary money can be supplied within the limits of that wealth’s monetizable value, breaking the “scarcity curse” and enabling overall correspondence between money supply and real value. In short, without credit-based money creation, true credit money cannot exist.
Second, losses from unrecoverable loans must be promptly recognized and provisioned for. Credit is extended based on expected future liquidity of assets. If loans are repaid as agreed, the money issued remains within the bounds of real value. However, asset values fluctuate cyclically due to supply-demand dynamics and are far from static. When loan defaults occur and cause actual losses, it indicates prior over-issuance of money beyond real asset value—true monetary overhang—which must be offset through loss provisioning and profit write-downs by financial institutions.
Third, deposit accounts and electronic transfers increasingly replace cash and cash payments as the dominant forms of money and payment. Money created via credit can be directly credited to borrowers’ accounts without physical cash issuance. Once authenticity is verified, funds can be debited from one account and transferred to another per instruction. This drastically reduces the scale and cost of printing, distributing, handling, and storing cash, enables traceable transactions, and strengthens oversight of legal compliance. Consequently, deposits (accounts) become the new form of money, with total money supply defined as “currency in circulation + deposits held by non-financial sectors in banks.” Today, cash issuance is no longer the main route of monetary expansion; cash is only dispensed when depositors request it. Meanwhile, deposit transfer systems continue evolving—from paper vouchers and manual processing to online electronic processing and now toward smart digital currency networks.
Fourth, the monetary management system undergoes profound transformation. For example, to prevent systemic risks arising from a single banking entity where interbank settlement constraints vanish—leading easily to excessive credit creation and threatening monetary stability—the system must differentiate between central banks and commercial banks. Central banks do not engage directly in credit operations with enterprises, households, or governments. Instead, they manage cash and control overall money supply—monitoring price stability, implementing countercyclical monetary policies, acting as lender of last resort to ensure market liquidity, and safeguarding financial stability. Commercial banks and other credit institutions handle direct financial services with the public. However, if excessive lending leads to severe liquidity crises or insolvency, they face bankruptcy restructuring or takeover by the central bank. A competitive multi-bank system with interbank settlement constraints is essential—monobanking is unacceptable.
When commercial banks primarily drive credit creation, the central bank ceases to be the main source of money issuance. Rather, commercial banks become the actual issuers of broad money, while the central bank shifts to managing base money and controlling the aggregate money supply.
Credit money breaks free from the “scarcity curse,” yet in practice, serious problems such as rampant money overhang, inflation, and financial crises persist. These issues stem not from credit money itself, but from inadequate understanding (largely stuck in the mindset of commodity-standard paper money) and serious mismanagement. Proposals today to return to a commodity standard or re-anchor money reflect ignorance or misunderstanding of money’s nature and evolution—they are regressive, not progressive—and will inevitably fail.
Moreover, in theory, as long as money supply stays aligned with the total value of tradable wealth, price stability and sound monetary credibility can be maintained. Therefore, credit money does not require any reserve asset (including gold or Bitcoin) as backing. Take the United States: despite holding over 8,100 tons of gold reserves, which have remained largely unchanged since abandoning the gold standard in 1971, the total USD money supply has grown continuously—especially rapidly after 2001, now exceeding $9 trillion—far outpacing gold reserves. The dollar has long operated independently of gold backing.
Bitcoin Can Only Be an Asset, Not Real Money
Technologically, Bitcoin employs advanced cryptography and blockchain-based distributed ledger systems. But in monetary terms, it closely mimics the mechanics of gold—the most widely used, longest-standing, and most influential monetary standard globally. Gold’s natural reserves are finite (though exact quantities remain uncertain), and visibly, extraction becomes harder over time. Absent technological advances, annual output appears to decline until exhaustion. Similarly, Bitcoin generates approximately one block every ten minutes, starting with 50 bitcoins per block (awarded to whoever computes the correct hash first). Every four years, the reward halves—25, then 12.5, and so on—until around 2140, capping total supply at 21 million. Thus, Bitcoin’s total and incremental supply are algorithmically locked, immune to human adjustment, making its supply rigidity even stricter than gold’s. If used as money, it could never meet the needs of infinitely growing tradable wealth. Since gold has already exited the monetary stage, a system imitating gold so closely—Bitcoin—cannot become real money. Bitcoin prices must still be quoted in sovereign currencies, and it rarely serves as a pricing or clearing currency in real-world transactions. In June 2021, El Salvador passed legislation granting Bitcoin legal tender status domestically, but implementation fell far short of expectations, generating numerous problems and growing public opposition. By January 30, 2025, the country revised the law, removing Bitcoin’s status as legal tender.
That Bitcoin isn't money doesn’t mean it lacks value. Just as gold retains worth post-monetary use—as a precious metal with spot, forward, futures, and diverse derivatives markets, generally appreciating against fiat currencies over time and serving as a key safe-haven asset—Bitcoin, as a novel digital or crypto asset built on blockchain technology, can similarly support various financial instruments. With sufficient use cases and broad trust, it can enable cross-border, online, 24/7 trading, potentially offering greater appreciation potential than gold. However, as a purely chain-native digital asset operating within a highly closed network (limited to mining, peer-to-peer transfers, and distributed validation, largely disconnected from the real economy), Bitcoin offers strong security but suffers from low operational efficiency and rising costs. Its primary applications lie in regulatory gray zones. Without state sovereignty support—or worse, under strict regulation—its utility remains limited. Should confidence wane or funding dry up, its price could collapse dramatically, even to zero. In investment risk, Bitcoin far exceeds gold and is certainly not “digital gold.” Given its extreme volatility and long-term uncertainty, holding Bitcoin as a monetary reserve is extremely dangerous.
Could Bitcoin’s decentralized (cross-border), highly closed network serve as a central platform for cross-border transfers of sovereign currencies—replacing SWIFT? This warrants careful examination.
Since its launch in early 2009, Bitcoin’s network has operated securely for over 15 years. Compared to sovereign currency systems, it offers unique advantages: borderless, online, 24-hour operation. At first glance, it seems suitable as a central hub for international remittances. But challenges remain: integrating sovereign currency systems with Bitcoin requires solving foreign exchange conversion between sending and receiving ends (currently dependent on third-party exchanges, often involving stablecoins pegged to fiat currencies as intermediaries) and managing exchange rate risks; Bitcoin transaction messages would need standardized formats similar to SWIFT to align settlements with underlying trades; and transaction speed must increase significantly (current capacity of ~10 transactions per second is woefully inadequate). These internal and external obstacles make it highly unlikely for Bitcoin to become a central platform for sovereign currency transfers.
Even if Bitcoin could serve as such a platform, it would remain merely an intermediary akin to SWIFT. Bitcoin itself would still not become real money. Strictly speaking, Bitcoin and similar assets should be called “digital assets” or “crypto assets,” not currencies.
Stablecoins Are Merely Tokens Pegged to Currencies
Digital stablecoins like USDT and USDC are essentially tokens representing their underlying fiat currencies. They emerged as intermediaries in response to the need for 24/7 cross-border online trading of crypto assets like Bitcoin, where existing sovereign currency infrastructures fall short. Hence, stablecoins have legitimate rationale.
Unlike Bitcoin, stablecoins cannot operate outside regulatory oversight. As fiat currency proxies, they must be tightly regulated by monetary authorities: reserves must be fully backed and held by trusted custodians; usage must be confined to approved domains to avoid threatening the pegged currency; they cannot extend credit or generate new tokens beyond reserves; and their trading—including derivatives—must be subject to full financial supervision.
The current issue is that, like Bitcoin, stablecoins are relatively new, and regulatory frameworks and enforcement remain incomplete. Stablecoin trading has rapidly expanded into complex derivatives, posing significant risks.
Central Bank Digital Currency Should Be the Digitization of Sovereign Money
After Ethereum launched in 2013 and accelerated the rise of cryptocurrency ICOs, driving sharp increases in Bitcoin and Ether prices, claims spread internationally that blockchain would become “the machine of trust” and “internet of value,” that cryptocurrencies would disrupt sovereign money, and that internet finance would overturn traditional finance. How to respond to this crypto冲击 became a major focus at the 2013 G20 Finance Ministers and Central Bank Governors meeting. Many central bankers advocated accelerating the development of “central bank digital currencies” (CBDCs). Subsequently, numerous countries—including China—began CBDC research.
However, CBDCs were hastily proposed under pressure from Bitcoin and Ether, without prior preparation. Fundamental questions—such as their relationship with existing sovereign money and financial systems, and whether blockchain technology could be used—remained unclear. CBDCs thus stayed in exploratory phases, often unconsciously attempting to build on Ethereum-like blockchain architectures. This approach threatened to disrupt the existing “central bank–commercial bank” two-tier financial system, forcing several countries to halt development. The People’s Bank of China announced in 2017 its intention to develop digital RMB, positioning it as M0 (cash in circulation), retaining the two-tier operational model. However, restricting digital RMB strictly to M0 and modeling it closely on cash management—prohibiting credit creation (even preventing the central bank from using digital RMB for base money issuance), mandating free exchange, and offering no interest on digital wallets—severely hampers its accumulation and application. Despite over a decade of research since 2014, there remains no clear timeline for official launch. Meanwhile, U.S. President-elect Trump explicitly stated he would not support digital dollar development.
In reality, digital RMB should represent the comprehensive digitization of RMB—not merely the digitization of cash. The term “central bank digital currency” itself is misleading. Credit money is no longer the liability or credit of the central bank, but of the state—national sovereign or legal tender. Moreover, money today consists mostly of deposits (including e-wallet balances), not just cash. Even base money issuance by central banks occurs primarily through credit mechanisms directly crediting borrowers’ accounts, not just via cash. Therefore, defining CBDC solely as M0 reflects a flawed understanding of credit money. Such a narrow definition inevitably results in poor cost-benefit outcomes and prevents successful rollout.
Hence, “central bank digital currency” should be renamed “sovereign digital currency.” The goal should be the full digitization of sovereign money and swift replacement of legacy systems—not merely digitizing cash while maintaining two parallel systems indefinitely.
Sovereign digital currencies cannot adopt decentralized architectures like Bitcoin or Ethereum. They must be centralized systems compliant with national regulatory requirements. Given that stablecoins pegged to sovereign currencies (de facto proxy tokens) have been operational for nearly a decade and have matured in stability and functionality, one viable path may be to adapt stablecoin technical frameworks to upgrade sovereign currency systems—enabling rapid deployment of sovereign digital currencies and phasing out the need for separate proxy tokens.
In conclusion, Bitcoin, stablecoins, and sovereign digital currencies must be carefully analyzed and accurately defined based on a deep understanding of the essence and evolution of money—especially credit money. Failure to do so risks conceptual confusion and serious policy errors.
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