Former Chinese Vice Minister of Finance Zhu Guangyao: Emphasize the study of cryptocurrencies, as they will play an important role in the digital economy

On September 28, the 2024 Tsinghua Wudaokou Chief Economist Forum was held in Beijing. Former Vice Minister of Finance Zhu Guangyao attended and delivered a speech.

In his speech, Zhu Guangyao called for attention to the research on the development of cryptocurrencies, stating, "It indeed has negative impacts, and we must fully recognize its risks and harms to the capital market. However, we must study the latest changes and policy adjustments internationally, as it is a crucial aspect of the development of the digital economy."

Here is Zhu Guangyao's speech:

The current development of the digital economy is leading the overall trends and directions of global development. This year, we have seen breakthroughs in technologies such as artificial intelligence, and I believe we have entered the Fourth Industrial Revolution, or that the Fourth Industrial Revolution has begun. This time, China is indeed different from the past three industrial revolutions; we are at the forefront, leading the development of the digital economy alongside the United States. Of course, we must acknowledge the gap between China and the U.S., particularly in the aspect of going from 0 to 1, where the U.S. still plays a leading role. However, China has the largest application scenarios for the digital economy, and we have made substantial accumulations in some innovative fields, talent cultivation, and technical expertise.

As you can see, the recent research report on the digital economy and productivity competition, chaired by former European Central Bank President Draghi, clearly states that there is a gap between the U.S. and China. Therefore, Europe must increase massive investments to catch up. However, I believe that in the next decade, the overall development trend of the digital economy indicates that the Fourth Industrial Revolution is maturing.

Speaking of infrastructure, at the front end, we have the smartphones that everyone uses, which are our platforms. However, the key infrastructure at the back end is data centers and the optical cables that ensure network operations. Transcontinental optical cables are crucial; in the context of globalization, over 99% of transcontinental data is operated through submarine cables. However, in this regard, among the 20 largest supercomputing centers globally, we have 3, the U.S. has 17, and Europe and Japan have none. Therefore, we are indeed in the first tier, achieving great results under the guidance of the new development philosophy of "innovation, coordination, green, openness, and sharing" since the 18th National Congress of the Communist Party. However, the challenge we face now is that the U.S. passed the "Clean Network Plan" in 2020 under the Trump administration, and it is still being implemented. A key area is submarine cables, where the U.S. is doing everything possible to prevent American companies from cooperating with China.

At the same time, Chinese companies have tremendous engineering and construction capabilities. However, they are doing everything they can to obstruct this. The United Nations has already provided clear data indicating that currently, 49% of global data exchange occurs in the U.S., 24% in Europe, and 22% in East Asia, with China accounting for 9%. However, if you cut off the transcontinental network and decouple the U.S. from China, the U.S. would suffer a loss of 12%, reducing its share from 49% to 37%, while China would drop from 9% to 7%, resulting in significant losses for both sides.

The most dangerous scenario is that in the next decade, the Fourth Industrial Revolution, driven by artificial intelligence, will be affected by this decoupling, leading to two parallel markets and two parallel supply chains. The International Monetary Fund estimates a loss of 7% to 12% of the global economy, amounting to $7 trillion to $12 trillion. As I reported earlier, last year's global economic total was $105 trillion. Such a massive economic loss cannot be borne by any single country; the risks are enormous. Therefore, we must return to the process of globalization and maintain close communication on major economic policies among key economies.

On another note, regarding the digital economy, I previously mentioned infrastructure, and now I want to discuss a unique asset of the digital economy—cryptocurrency. Over the past decade, the U.S. has consistently believed that:

1. It has a tremendous destructive power against international anti-money laundering and anti-terrorism financing efforts.

2. Its extreme value fluctuations have a significant impact on international financial markets.

However, this year, U.S. policy has undergone a significant transformation. Firstly, the Republican Party has explicitly included the development of cryptocurrencies in its campaign platform, while also stating a clear intention to exclude China. Trump openly stated during his campaign that we must embrace cryptocurrencies, denying that China will replace us. His vice-presidential candidate, Vance, is a venture capitalist with substantial cryptocurrency assets.

As for the administration, Biden's government has seen Trump state that on his first day in office, he would fire the current chair of the SEC, which restricts the development of digital currencies in the U.S. However, this chair approved 11 Bitcoin ETFs for listing on the New York Stock Exchange, Nasdaq, and the Chicago Mercantile Exchange in January of this year. This marks the U.S. government's recognition of Bitcoin's legitimacy, and by July, the second one, Ethereum, was also listed.

Thus, even though Trump criticized the current SEC for implementing various policy restrictions on Bitcoin development, the overall attitude of the Biden administration has fundamentally changed. In emerging market countries and BRICS nations, in September of this year, Russian President Putin officially approved cryptocurrencies, while South Africa, Brazil, and India had already been working on this previously. Therefore, while the development of digital currencies and cryptocurrencies indeed has negative impacts, we must fully recognize their risks and harms to the capital market.

However, we must study the latest changes and policy adjustments internationally, especially the impact of policies from both the Republican and Democratic parties in the U.S., as it is a crucial aspect of the overall development of the digital economy. Thank you!

Ju Jiandong asked Zhu Guangyao: Looking back to before 2015, China's digital currency technology was leading globally, back then it was called mining. Now, nine years later, how far do you think we are behind?

Zhu Guangyao: The current situation is closely related to the development of chips. Because if you don't use it, what were we worried about before? One is, as I mentioned earlier, that it has been severely impacted by the U.S. and our discussions in the G20, particularly regarding anti-terrorism financing and anti-money laundering, which have faced serious challenges, especially the extreme fluctuations in the capital market. Does it exist? Yes.

However, how to solve the regulatory issues? It should be solvable. Our current gap is that you are not participating, but as I said, even with such restrictions, transactions do occur through underground channels, but you cannot utilize production capabilities because it is legally prohibited. Therefore, we need to study new issues, as the communiqué from the Central Political Bureau meeting stated, we must confront the problems and discuss solutions.