The deputy governor of the China Central Bank – People’s Bank of China, Lu Lei, recently highlighted in his book two influential figures in monetary economics deserving profound respect: the late Robert Mundell and the enigmatic Satoshi Nakamoto.

Mundell, despite his pioneering work on single currency areas, could not achieve the “dollarization utopia” he envisioned. Meanwhile, Bitcoin—originally designed as a revolutionary currency—has transformed into a high-value digital asset, moving increasingly distant from its intended role as a widely used medium of exchange.

Satoshi Nakamoto’s Bitcoin: Not a Universal Solution?

In his new book, Lu Lei, the China Central Bank deputy governor, reflects on two iconic figures of monetary theory: the late Nobel laureate Robert Mundell and the mysterious founder of Bitcoin, Satoshi Nakamoto. While Lu appreciates their work, he argues that neither can achieve a universal monetary solution. He discusses ways digital assets, including Bitcoin, raise challenges and possibilities for future global monetary systems.

According to Lu, Mundell, and Satoshi Nakamoto both symbolize opposite ends of the economic spectrum.

“The latter watched the bitcoin he created evolve into an extremely expensive digital asset. At present, the energy consumed by the world to mine the last 2 million coins each year is enough for hundreds of millions of people to use for more than a year. According to the marginal cost pricing method, the closer Bitcoin is to an asset, the further it is from a widely circulated currency.”

Mundell, the so-called “father of the euro” – has spent his career theorizing on single currency areas and failed in his dream of “dollarization utopia”. In contrast, 16 years ago, Satoshi Nakamoto wrote Bitcoin whitepaper, praised by many. It shows Bitcoin  as a radical digital currency promising financial freedom.

However, with time, it became an asset carrying a value high enough to make it drift further away from its intended role as an everyday exchange medium. Lu says that it has reached a point where the energy consumed in mining the remaining two million Bitcoins equates to what hundreds of millions of people consume annually, stating that Bitcoin has gone astray from Mundell’s ideals on efficiency.

Central Banks Must Adapt to the Digital Age or Die

Looking ahead, Lu writes that, as time goes by, the rise of digital assets will challenge traditional currency systems, provided the related stability and scalability problems can be solved.

His work has raised some critical questions, such as whether non-supra-national digital assets will one day replace government-issued currencies or whether central banks create stable digital currencies capable of effective competition.

Lu warns that large economies should actively avoid “central bankers saving the central bank and” undergoing any digital transformation to cut transaction costs while continuing to provide sovereign currency stability.

Using three volumes of his “Theory of Money,” he looks at how digitization could rewrite monetary policy rules, the role of a central bank, and the feasibility of one world currency befitting the digital age.

What Satoshi Nakamoto had in mind was that Bitcoin should find widespread adoption as a currency. Nowadays, it poses two significant ills: energy consumption and an asset value in relentless growth. In such a dynamically developing digital economy, money still has an open future.

Will Bitcoin overcome these obstacles and become a proper means of exchange, or is the future of money with central bank digital currencies? The answer, says Lu, probably lies in a delicate balance between innovation and stability, efficiency with preserving the integrity of sovereign currencies. Ultimately, the way forward is to carefully analyze and keep in mind changing situations in the ever-changing landscape of the digital era.

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Teuta

Teuta is a seasoned writer and editor with over 15 years of experience in macroeconomics, technology, and the cryptocurrency and blockchain industries. Starting her career in 2005 as a lifestyle writer for Cosmopolitan in Croatia, she expanded into covering business and economy for several esteemed publications like Forbes and Bloomberg. Influenced by figures like Don Tapscott and Bruce Dickinson, Teuta embraced the blockchain revolution, believing crypto to be one of humanity’s most crucial inventions. Her fintech involvement began in 2014, focusing on crypto, blockchain, NFTs, and Web3. Known for her excellent teamwork and communication skills, Teuta holds a double MA in Political Science and Law, enjoys punk rock, chablis, and has a passion for shoes.

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