Note: China’s official People’s Daily newspaper released an article today titled Digital Currency’s Ideal and Reality , highlighting that it is difficult to impose a complete ban on cryptocurrencies and the digital currency is a valuable experiment.The article’ s author, Yang Tao, is the Assistant Director of the Institute of Finance and Banking of the Chinese Academy of Social Sciences.

Cryptocurrencies have been on a roller coaster ride in recent months. Bitcoin has dropped below $7,000 in late March, making a fall of more than half from a peak of almost $20,000 hit in last December. The leading digital currency also soared 11% to two-week highs in 24 hours time last week.

As the market is characterized by large fluctuation, the attitude towards cryptocurrencies varies among countries. Some countries strongly support digital assets by issuing the word’s first sovereign (SOV) digital currency, while more countries remain cautious and focus on the research and guidance.

There are 5 reasons why different countries adopt different attitudes toward cryptocurrency. First, countries’ concerns over it are fundamentally different. For example, Venezuela’s oil-backed cryptocurrency, petro, is more like digital debt than currency. Second, the regulative tone is subject to domestic politics and international competition. Third, the number of fans and the influence of digital currency such as gray deals and money laundering differ from one country to another. Fourth, laws and regulative rules over cryptocurrency varies among countries. Fifth, different countries have different levels of awareness of the digital currency, some focus on its monetary attributes, while others prefer to label it quasi-assets and commodities.

Therefore, we have to clarify some vague concepts before exploring the connotation of digital currency.

The arrival of new technologies do blur the conceptual boundary of money.Theoretically, New Monetary Economics indicates the currency use would dwindle or disappear, and fiat money is no longer the only medium of exchange which will be eventually replaced by the financial assets that can generate pecuniary benefits and are issued by the private sector.

In reality, despite the unshakable status of fiat money, private currencies have been used in some scenarios in the history. For example, in Germany, an alternative currency called the Wära was introduced in 1920s. Nowadays, digital currency with the “decentralized” feature increasingly highlights the challenge brought by a private currency .

In fact, both the traditional “private currency” and bitcoin-like “private currency” challenge the monetary authorities’ right to issue fiat money. From a technical perspective, however, it is difficult to impose a complete ban on cryptocurrency, and regulators should pay more attention to the bottom line of supervision over crypto trading and investor protection, such as anti-money laundering, and clampdown on market manipulation.

Broadly speaking, electronic money exerts the most profound impact on the existing monetary system, because it will directly affect the statistical category of money supply, the monetary transmission mechanism, and the efficiency of payment and settlement. In the digital era, the types of assets that can be incorporated into the basket of “quasi-currency” are increasing, eroding the correlation between policies of currency issuance and macro indicators.

Narrowly speaking, bitcoin and other cryptocurrencies do not have the fundamental attributes needed to be a currency. In most cases, they are treated as special assets or commodities. It’s safe to say that digital currency’s actual influence is not demonstrated on the monetary level, but on the financial market and financial stability.

The existing monetary and financial systems do not derive from a natural evolution, but are the inevitable result of legal restrictions or government regulations. Although there are many flaws in the digital currency, it is also a valuable experiment, especially in the exploration of super-sovereign currency.

Different from precious metals and the credit money which are backed by value, digital currency aims to explore the “ transaction benchmark consensus”. If cryptocurrencies continues to be affected by price fluctuations, speculative trading and deflationary models, they can hardly be used as a “means of payment”. In this sense, cryptocurrencies will distance themselves from the “ monetary experiment”, or become a special kind of basic “digital assets”, or they are just a flash in the pan.