Research On The Identification And Control Of Digital Currency Risk In The United States

Advanced science and technology have led humanity into the era of Digital Economy,and all industries around the world are actively carrying out digital transformation.With the thorough use of integration of financial industries and technologies,society has already passed the stage of traditional financial informatization,Fin Tech 1.0,and the stage of financial digitalization,Fin Tech 2.0.At the stage of Fin Tech 3.0,emerging technology,such as Big Data,Cloud Computing,AI,and DLT,has spawned many technology companies and financial innovation products.Meanwhile,influenced by the 2008 financial crisis and the global popularity of Quantitative Easing(QE)policy,Neoliberalism has gained attention again in terms of ideology.The first generation of digital currencies,such as Bitcoin,came into being,but its new features,such as “decentralization”,have also caused the traditional economic theory to face great difficulties in explanation.As of November 2021,the market value of the digital currency market has grown to $3 trillion from less than $100 billion five years ago.There are many various digital currencies,including the private digital currencies issued by the personal sector,and the statutory digital currencies endorsed by national credit.While the explosive development of digital currency has also brought many new risks,which poses great challenges to the risk identification and control of governments and financial regulators.This paper mainly focuses on the whole perspective of digital currency(including private digital currency and legal digital currency),it redefines the essential properties and new characteristics of digital currencies.The research is based on the theories of the New Austrian School,the Public Choice School,and the New Monetary Economics,and supported by “the Conceptual Economics” that emerged after the “Metaverse”,which also concludes that the digital currency is duality(monetary property and investment property);Digital currency has value;all the currency functions can be realized from the theory aspect,but in practice,monetary functions will be separated due to the digitization and others.On this basis,the risk of digital currency is studied,and three types of digital currency risks are found that are different from traditional financial risks-digital currency substitution risk,digital currency privacy risk and digital currency crime risk,and all three risks will affect the country security.Therefore,the research focuses on the above three risk types,focusing on the identification and control in risk management.The purpose is to discuss the new challenges faced by national security in the digital age from the perspective of currency,and to provide ideas for China’s digital currency risk management.Because the United States is the birthplace of encryption,digital products,and services,as well as having a mature and almost the world’s largest financial market,which has complete rich development history and practical experience of digital currency.Moreover,the U.S.is a highly financialized country,and the dollar with its payment system is an important basis for the United States to maintain its financial hegemony.Therefore,it is helpful to get a more deeply understanding of digital currencies by taking the United States as an example to carry out the study.Not only can we obtain rich regulatory experience,but also extract valuable thoughts on the global development trend of digital currency,competition for monetary power,economic security,etc,which is from the risk management and policy guidance of the U.S.government and regulators on digital currencies.This paper is divided into two major parts logically: “theory foreshadowing” and“the proposal and solution of core issues”.In the theoretical foreshadowing part of digital currency,as a new thing in rapid development,the basic concepts and theories of digital currency are still controversial in academia and industry,and the research innovatively starts from the “dual” attribute of digital currency,Sufficient theoretical demonstration is urgently needed to form a complete logical chain.Therefore,the focus of this part is to demonstrate the monetary properties of digital currency,to distinguish similar concepts,to explain and unify related terms,and to provide theoretical support for the research in the second part.For “the proposal and solution of core issues” section,firstly,the research presents the concept,characteristics,causes,and types of digital currency risks by following the deductive reasoning process from “general” to “specific”.In the study of digital currency risk management,we should make use of the research process of traditional financial risk management(including three main parts: financial risk identification,metrics,and control)and mainly focus on the identification and control parts of that for the United States.And then,we would be analyzed and evaluated the problems and effectiveness of digital currency risk control.From a theoretical perspective,“the Impossible Trinity”,a policy limitation on the risk control of digital currency is proposed.In terms of case analysis,on the one hand,the effect of risk control implemented by regulators is measured from the perspective of regulatory arbitrage;on the other hand,the impact of risk control on industry development is measured through the lens of compliance costs.Finally,the aspirations about the development and risk management of digital currencies in China would be provided.There are both theoretical and methodical contributions to this research,those mainly are the following aspects:Firstly,this research integrates and unifies the research on private digital currency and legal digital currency,and focuses on the risk identification and control of digital currency in the United States from the perspective of national security,which enriches the achievements in related academic fields.Secondly,with the reference of Cohen’s “Currencies Pyramid”,we can build the“Currency Functions Pyramid” that is based on the ease of realizing currency functions and then combine the two pyramids to construct the analysis framework with digital currency pyramid and it’s functions pyramid,after that,explore the risk of digital currency substitution and could also provide new theoretical tools and analysis methods for the study of currency competition in the digital economy era.Furthermore,the study divided the risk of digital currency substitution in the open economy into two levels and four types,direct substitution risk and indirect substitution risk under symmetric digital currency substitution risk;substitution risk and indirect substitution risk under asymmetric digital currency substitution risk,which complements the theory of international monetary competition in the digital economy.Thirdly,due to the systemic nature of risks,especially in the era of digital economy,the characteristics of the Internet of Everything make the relationship between risks closer,and the previous literature has insufficient understanding of the connection between digital currency risks.Therefore,this paper identifies the relationship between three digital currency risks(Digital currency substitution risks,Privacy risks,Criminal risks),and finds the contradictory relationship between the three.Furthermore,under the conditions of an open economy,due to the obvious positive and negative external effects of the privacy risk of digital currency,there is a "trilemma" dilemma in the policy choice of digital currency risk management in extreme cases,and the risk management department has the most effective management of only two of these risks can be achieved simultaneously.This means that the R&D department and risk management department of digital currency need to make certain policy trade-offs and compromises in the design and management of digital currency with considering their realities and regulatory objectives.