The recent launch of domestic DC/EP pilot programs in various countries has heightened public interest in digital currencies. Discussions are taking place across social and academic circles, with many focusing on the transformative potential of these new financial instruments. One widely circulated view suggests that "digital currencies can map digital value to real-world authority, enabling control over the modern financial system." While this perspective has gained traction among cryptocurrency enthusiasts, the reality is far more complex.
A simple case study illustrates this point. In 2018, the Venezuelan government launched the Petro, a digital currency backed by one barrel of Venezuelan crude oil per token. This created a direct digital-to-asset mapping, yet Venezuela failed to gain any meaningful financial control or stability. Instead, citizens widely rejected and sold off the Petro.
A sovereign currency's dominant position in the global financial order isn't determined solely by its technological form. The U.S. dollar's status as the world's primary reserve currency stems from the credibility of the U.S. government and the nation's comprehensive strength in economic, political, military, and technological domains. As long as U.S. credibility and power endure, the dollar's central role remains secure.
So what changes might digital currencies bring to the global financial landscape? Current evidence suggests that货币数字化 (currency digitization) will play a significant role in the monetary system's third "anchor search" cycle.
Understanding the Concept of a Monetary Anchor
Much like a ship's anchor stabilizes a vessel in turbulent waters, a monetary anchor provides stability to national and global financial systems. By pegging to this anchor, countries can stabilize currency values, reduce transaction costs in international trade, and create predictable financial environments.
Academic research on international monetary evolution suggests that the global monetary system undergoes a minor anchor search cycle approximately every forty years, with a major recalibration occurring every eighty years. History shows that the collapse of monetary anchors typically triggers significant economic turbulence and political crises, while successful re-anchoring often precedes 10-20 years of economic prosperity.
If we count from the collapse of the gold standard after World War II, we have now entered the third major currency anchor transition period.
First Anchor Transition: Gold Standard Establishment and Collapse (1870-1929)
From the mid-19th century onward, major economies including Britain, the United States, and Germany adopted the gold standard system, formally establishing an international gold standard framework. Under this system, gold served as the anchor for all national currencies, with exchange rates determined by each currency's gold content. The gold anchor limited international exchange rate fluctuations to a narrow range, enabling exchange rate stability and automatic adjustment of international balances.
The period between 1870 and 1914 witnessed remarkable exchange rate stability, low inflation, and steady economic growth globally. This era marked America's "Gilded Age" and industrial revolution, during which the modern United States emerged as a global power. The U.S. economy expanded dramatically—from $11 billion in national product in the mid-1880s to $84 billion by the end of World War I, an eightfold increase. By the early 20th century, American manufacturing output surpassed the combined production of Britain, Germany, and France, establishing the U.S. as the world's largest industrial nation and wealthiest economy.
World War I disrupted international trade and initiated the gold standard's collapse. Post-war Europe lay in economic ruins, with former creditors like Britain and France becoming debtors, while the United States emerged as Europe's largest creditor. The classic gold standard became impossible to maintain, forcing countries to adopt gold exchange standards that limited gold convertibility.
The Great Depression of 1929 and subsequent World War II delivered further blows to the global economy. Facing depleted gold reserves and speculative currency attacks, nations suspended gold convertibility and allowed their currencies to float freely, effectively abandoning the gold standard.
Second Anchor Transition: Post-War Recovery and Bretton Woods (1929-1971)
Following World War II, the United States stood as the world's most powerful nation, accounting for 50% of global GDP and 63% of gold reserves. Meanwhile, Europe lay devastated by war and burdened by debt. To rebuild the international financial order, 44 allied nations convened in Bretton Woods, New Hampshire, establishing what became known as the Bretton Woods system.
This new framework pegged the U.S. dollar to gold while other currencies pegged to the dollar, establishing the greenback as the world's primary reserve currency. The dollar became the global monetary system's "nominal anchor," facilitating post-war economic and trade recovery and growth. Global exports surged from $62 billion in 1950 to $580 billion by 1973 when the system collapsed, representing a 15.5% compound annual growth rate. U.S. stock markets flourished, with the S&P 500 index rising from 17.5 in 1950 to 116.03 in 1973, an 8.6% annualized growth.
With assistance from American recovery programs (the Marshall Plan for Europe and Dodge Plan for Japan), European economies (particularly Germany) and Japan experienced rapid recovery, achieving average annual growth rates exceeding 10% through the 1960s and early 1970s, transforming into economic powerhouses and major export nations.
Despite its initial success, the Bretton Woods system contained a fundamental flaw now known as the "Triffin Dilemma": As the world's currency, the dollar needed continuous issuance to meet growing global trade demands, requiring the U.S. to maintain trade deficits. Yet as the global monetary anchor, the dollar needed stable value, which required reduced supply and trade surpluses. This contradiction became increasingly apparent as America's gold reserves dwindled from 20,279 tons in 1950 (nearly two-thirds of global reserves) to just 9,839 tons by 1970—a 51% decline.
International currency speculators exacerbated these pressures. In May 1971, a massive speculative attack against the dollar triggered massive selling of dollars and buying of gold and European currencies. Faced with mounting pressure from central banks and speculators converting dollars to gold, President Nixon suspended the dollar's convertibility to gold in August 1971, effectively ending the Bretton Woods system. Within two years, most OECD nations had transitioned to floating exchange rates, launching a new search for monetary anchors.
Third Anchor Transition: The Great Stagnation and Jamaica System (1972-2008)
Following Bretton Woods' collapse, the U.S. government negotiated with Saudi Arabia and other major oil producers to denominate oil transactions in dollars, maintaining dollar supremacy in exchange for military protection and arms sales.
Despite maintaining its global role, the dollar's loss of its gold anchor created significant volatility, impacting global economies and asset prices. Persistent currency depreciation fueled global commodity price increases, and combined with oil crises, plunged Western economies into "stagflation"—the simultaneous occurrence of economic stagnation, high unemployment, and high inflation.
President Nixon's wage-price controls and intervention in labor negotiations failed to control inflation, which reached 3.2% in 1972-1973 despite controls, while unemployment remained above 5%. By 1974, the U.S. economy showed -0.5% real GDP growth, 12% inflation, and 9% unemployment. Subsequent presidents Ford and Carter failed to resolve these economic challenges, with stagflation significantly influencing the 1976 and 1980 presidential elections.
As economist Milton Friedman famously stated, "Inflation is always and everywhere a monetary phenomenon." His proposed solution—the "single rule" of matching money supply growth to expected economic growth—evolved into inflation targeting through further development by economists including Mundell.
New Federal Reserve Chair Paul Volcker implemented a pragmatic approach upon taking office in 1979, simultaneously targeting interest rates and money supply. Within five months starting in 1980, he aggressively tightened monetary policy, raising the federal funds rate from 9.5% to 20%. This contractionary policy succeeded, reducing U.S. inflation to 2.5% by July 1983.
However, solving domestic inflation only addressed the dollar's internal stability. Achieving full anchor status required exchange rate stability and addressing America's persistent trade deficit.
High interest rates had strengthened the dollar, worsening the U.S. trade balance. To maintain dollar dominance without devaluation, the U.S. pressured trading partners with significant surpluses—particularly Japan and Germany—to appreciate their currencies.
The 1985 Plaza Accord required yen and mark appreciation against the dollar. While Japanese exports declined and loose monetary policies triggered asset bubbles and three decades of economic stagnation, the accord initially worsened the U.S. current account due to J-curve effects. The 1987 Louvre Accord followed, requiring G7 coordination to stabilize dollar exchange rates.
These agreements eventually improved U.S. international payments and stabilized the dollar, achieving both internal price stability and external exchange rate stability throughout the 1990s. The Jamaica system formally emerged, establishing a new global monetary anchor.
Under this system, major global currencies delinked from gold and adopted floating exchange rates. The dollar remained the international system's dominant currency, forming a currency basket with the euro, yen, and others that served as anchors for many developing and emerging market economies. Major Western economies adopted inflation targeting, maintaining low inflation while information technology industries flourished. Even established economies like the United States achieved 5% growth rates during the 1990s, entering a "new economy" era.
The Current Transition: Rebuilding the International Monetary System in the Post-Crisis Era
Despite the Jamaica system's success, fundamental problems persisted. While the U.S. could pressure Japan and Germany into currency appreciation, it never fully resolved trade balance issues. The dollar-based international monetary system contains an inherent contradiction: serving simultaneously as a national currency and global currency creates profound imbalances.
The United States purchases goods from developing nations using inexpensive dollars, while these countries reinvest dollar reserves in U.S. Treasury securities, completing dollar recycling. However, whenever the Federal Reserve expands money supply, developing nations face foreign exchange asset depreciation. Meanwhile, developed nations face their own challenges: inexpensive imports from developing countries damage domestic manufacturing, creating unemployment and "rust belt" regions, while financial services industries profit enormously from globalization.
These systemic flaws in the global monetary architecture have created economic imbalances and distributional inequalities, fueling current anti-globalization sentiments and populist movements—the rise of Trump and European right-wing forces reflects deep economic underpinnings rather than偶然现象 (accidental phenomena).
The 2008 subprime crisis and subsequent global financial turmoil prompted the Federal Reserve to lower interest rates and implement quantitative easing, injecting massive liquidity into markets. This crisis transmission through dollar mechanisms drew criticism globally, particularly from emerging market nations, increasing calls for international monetary system reform. The global monetary system thus embarked on its third anchor search.
Digital Currency's Potential Role in the Third Anchor Search
An ideal monetary anchor fundamentally reduces transaction costs in national and international trade and financial interactions. Selection criteria for standard monetary anchors generally depend on two crucial factors:
- The anchor's inherent stability—not just external exchange rate stability but also internal inflation expectation stability
- Suitability as primary valuation, reserve, and settlement currency in international trade—Gold naturally met these requirements due to its properties, but fiat currencies must satisfy two conditions: significant share in global trade, and efficient, secure cross-border payment infrastructure providing global liquidity
Historical analysis of modern international monetary systems reveals the importance of these factors. During the gold standard period, the "Hume mechanism" automatically balanced national price levels and international payments. Under Bretton Woods, dollar-gold linkage maintained dollar value stability, while the Marshall Plan and Dodge Plan successfully established the dollar as primary valuation, settlement, and reserve currency through massive dollar inflows to Europe and East Asia. In the Jamaica system, the Plaza and Louvre Accords resolved external exchange rate stability issues, inflation targeting achieved domestic price stability, while petrodollars, SWIFT, and CHIPS systems maintained the dollar's global position.
Digital currencies could contribute to the third anchor search in two significant aspects:
Enhancing Monetary Value Stability
Monetary policy independence frequently faces external interference. Even a determined Fed chair like Paul Volcker faced significant opposition during his anti-inflation campaign: President Carter criticized his policies as "rigid," President Reagan hinted at refusing reappointment, congressmen pressured his resignation, media outlets mocked him, and farmers famously tractored to the Fed's doors in protest. Even today, we witness presidential tweets "threatening" the Fed over stock market declines.
Digital currencies offer new possibilities for future monetary policy. The "code is law" principle could apply to monetary mechanisms: central banks could issue digital currencies with inflation targeting built into issuance protocols, preventing political interference and monetary policy abuse while avoiding fiat currency depreciation and supporting normal economic growth needs.
Improving Cross-Border Payment Infrastructure
The dollar's role as primary settlement currency in global trade stems not only from its widespread valuation usage but also from convenient clearing systems: CHIPS and SWIFT. The latter operates as a global messaging network connecting payment systems, while CHIPS specializes in dollar cross-border payment clearing.
However, current international cross-border payment systems remain complex and inefficient. A typical wire transfer requires 2-5 working days for settlement, with fees averaging 0.1% of transaction amounts plus additional telegraphic charges. 👉 Explore advanced settlement solutions
Blockchain technology underlying digital currencies offers significant advantages for cross-border payments: not only improving transfer speed but reducing remittance costs. Some existing blockchain-based cross-border remittance services complete transfers in just three seconds with minimal fees. While current blockchain technology cannot yet support large-scale clearing and settlement, we can anticipate future reconstruction of cross-border payment systems using distributed ledger technology.
Looking Forward: Digital Currency in the Next Decade
The COVID-19 pandemic has triggered renewed monetary easing policies globally, with overflowing liquidity creating numerous challenges for the global monetary system. Historical patterns suggest the global monetary system undergoes minor anchor search cycles every forty years and major cycles every eighty years, with each search lasting approximately twenty years. The third anchor search commenced in 2008, and the coming decade will witness rapid development of digital currency and financial technology.
We should seize this historical opportunity, leveraging digital currency's advantages to promote completion of the international monetary system's third anchor search. The integration of blockchain technology, central bank digital currencies, and innovative payment systems could potentially address longstanding weaknesses in the global financial architecture while creating more stable, efficient, and inclusive monetary systems for the future.
Frequently Asked Questions
What is a monetary anchor?
A monetary anchor provides stability to national and global financial systems by pegging currency values to a stable reference point. This reduces transaction costs in international trade and creates predictable financial environments. Historical anchors have included gold, the U.S. dollar, and currency baskets.
How do digital currencies improve cross-border payments?
Digital currencies built on blockchain technology can significantly enhance cross-border payment efficiency by reducing settlement times from days to seconds and lowering transaction costs. The decentralized nature of distributed ledgers eliminates intermediary requirements and enables direct peer-to-peer transactions across borders.
Can digital currencies replace the U.S. dollar as global reserve currency?
While digital currencies show promise for improving monetary stability and payment efficiency, replacing the dollar would require overcoming significant structural and institutional barriers. The dollar's reserve status derives from U.S. economic dominance, deep financial markets, and network effects that no digital currency currently matches. However, digital currencies could gradually assume larger roles in international finance alongside traditional currencies.
What challenges do digital currencies face in monetary systems?
Key challenges include regulatory uncertainty, technological scalability issues, energy consumption concerns for some consensus mechanisms, price volatility for non-stablecoin designs, and potential cybersecurity vulnerabilities. Central bank digital currencies may overcome some of these challenges but introduce questions about privacy and financial surveillance.
How might digital currencies affect developing economies?
Digital currencies could potentially enhance financial inclusion in developing economies by providing access to digital payment systems without traditional banking infrastructure. They may also reduce remittance costs for migrant workers and enable more efficient aid distribution. However, they also risk facilitating capital flight and complicating monetary policy management for emerging market central banks.
What role will blockchain play in future financial infrastructure?
Blockchain technology will likely underpin next-generation financial infrastructure for clearing, settlement, and asset tokenization. Its distributed nature offers resilience against single points of failure, while cryptographic security enhances transaction integrity. Financial institutions are increasingly exploring blockchain for cross-border payments, securities settlement, and trade finance applications.