Standard Money

Standard money, also known as legal currency or fiat money, is a form of currency issued by a national government or monetary authority and granted mandatory circulation and legal tender status through legislation. As a significant manifestation of national sovereignty, it serves as both the fundamental unit of measurement for economic activities and an essential tool for implementing macroeconomic regulation. Currently, most currencies used worldwide are standard money, such as the US dollar, euro, and Chinese yuan. The issuance of standard money is typically the responsibility of central banks or similar institutions. Its value depends neither on the value of physical commodities (like gold) nor on production costs, but primarily on government credit and overall economic strength.

Standard money has profoundly influenced global financial markets and economic systems. As a symbol of economic sovereignty, it directly relates to a nation's financial security and economic stability. The monetary policies of major reserve currencies (like the US dollar) affect not only their domestic economies but also generate spillover effects on other countries through global trade and financial systems. In cross-border trade settlements, stronger standard currencies often enjoy higher acceptability and circulation, conferring special economic and political advantages on issuing countries. Meanwhile, exchange rate fluctuations of standard money directly impact international trade balances and capital flows, becoming a crucial variable in global economic operations.

Standard money faces multiple risks and challenges. First is the risk of inflation, where excessive currency issuance can lead to decreased purchasing power, eroding citizens' wealth. Second, in the context of globalization, standard money is subject to cross-border capital flows and changes in international political and economic situations, exacerbating exchange rate volatility. Third, the digital wave has brought challenges to traditional standard money systems with the rise of private digital currencies and Central Bank Digital Currencies (CBDCs). Particularly, the emergence of decentralized cryptocurrencies is viewed by some user groups as an alternative to the standard money system, although they have not yet posed a substantial threat. Additionally, the standard money system heavily relies on financial intermediaries like banks, and systemic financial risks could affect monetary stability.

Looking ahead, standard money will evolve along digital, international, and diversified paths. On one hand, the development and application of Central Bank Digital Currencies will become a mainstream trend, potentially enhancing payment efficiency, reducing currency issuance and circulation costs, while providing governments with more precise economic regulation tools. On the other hand, with changes in the global economic landscape, the trend toward reserve currency diversification may strengthen, and regional monetary cooperation mechanisms will develop. Furthermore, the integration of standard money with various innovative financial instruments will continue to deepen, with the proportion of traditional cash usage likely to decline further. However, the core functions of standard money as a measure of value and medium of settlement are expected to persist in the foreseeable future. Most importantly, central banks will face the complex challenges of balancing financial innovation with risk prevention, and maintaining monetary sovereignty while promoting international monetary cooperation.

As the cornerstone of the modern economic system, standard money has significantly reduced economic transaction costs and promoted market development and economic prosperity by providing a relatively stable measure of value and an efficient medium of exchange. It is a key tool for government macroeconomic regulation and an important component of national sovereignty. Despite the diversification of monetary forms brought by digital technology, standard money will continue to play an irreplaceable role in the global economic system for the foreseeable future, and its evolutionary direction will profoundly influence the future landscape of the financial system.