It’s always interesting when a high-ranking central bank official speaks out, especially about Bitcoin. This time, it’s Lu Lei, the deputy governor of the People’s Bank of China, who’s weighed in on the topic. In his new book, Lu covers the impact of Bitcoin and the ideas behind it, alongside the insights of notable economic thinkers like Nobel Prize winner Robert Mundell and Bitcoin’s creator, Satoshi Nakamoto. While he acknowledges their contributions, Lu also points out some real-world challenges Bitcoin faces today.
Bitcoin’s Popularity and Value: A Double-Edged Sword
To understand Lu’s perspective, we need to look back at Robert Mundell’s vision. Known as the “father of the euro,” Mundell once imagined a single global currency that could strengthen economies worldwide. In his eyes, a unified currency would help streamline trade and bring stability. But the idea of a dollarized, unified global economy turned out to be more of a utopian vision—or dystopian, depending on your point of view.
Then came Nakamoto in 2008 with a fresh idea: Bitcoin. This digital currency offered people a way to exchange value independently of traditional banking systems. It promised financial freedom, but over time, Bitcoin has evolved into more of an investment asset—a digital version of gold. Instead of becoming a daily payment tool, it’s now seen more as a store of value.
Lu points out that Bitcoin’s surge in popularity and value has transformed it into a savings vehicle rather than an everyday currency. People tend to hold onto it, hoping its value will rise, which limits its potential as a regular currency.
And then there’s the energy problem. Mining Bitcoin consumes an immense amount of power. According to Lu, mining the remaining two million Bitcoins alone could use enough electricity to power millions of households for an entire year. This high energy consumption clashes with Mundell’s vision of an efficient and accessible currency system.
Are Central Banks at Risk of Losing Their Relevance?
In his book, Lu raises a big question: do central banks still have a place in our increasingly digital world? To stay relevant, he suggests they’ll need to adjust to the digital age. One way they could do this is by issuing central bank digital currencies (CBDCs). With a CBDC, central banks might combine the perks of cryptocurrencies with the stability of a state-backed currency.
But Lu warns that launching a CBDC isn’t a simple fix. For it to work, central banks would need to prioritize scalability and stability. Without those, the effort could fall short. According to Lu, while Bitcoin has opened the door to new possibilities for digital currency, the future of money will depend on finding a balance. Central banks will need to embrace technology while staying committed to the fundamental values of monetary stability and national sovereignty.
In the end, Lu’s perspective offers food for thought. While Bitcoin has paved the way for digital innovation in money, it also highlights the ongoing role central banks play in managing financial stability. As we explore the future of currency, one thing’s clear: the path forward will require a blend of tradition and tech.