In a press conference held by the State Council Information Office on January 15, 2014, Sheng Songcheng, Director of the Survey and Statistics Department at the People’s Bank of China (PBC), provided insights into the 2013 financial data and addressed pressing questions about Bitcoin. His remarks clarified the official stance on digital currencies and emphasized the distinction between virtual commodities and legal tender.
Understanding the Nature of Money
To grasp why Bitcoin does not qualify as real money, it's essential to first understand what constitutes a currency. At its core, money serves three primary functions: a medium of exchange, a unit of account (or measure of value), and a store of value. Historically, societies used commodity money, such as shells, salt, or livestock, before transitioning to precious metals like gold and silver.
As Sheng explained, "Gold is naturally money," echoing Karl Marx’s famous observation. Gold became the ideal form of money because it was durable, divisible, scarce, and widely accepted. More importantly, it had intrinsic value—something tangible that underpinned its worth in trade.
However, as economies expanded in the 20th century, the limited supply of gold could no longer support growing transaction volumes. This led to the collapse of the gold standard. By the 1970s, most nations, including major economies, abandoned commodity-backed money in favor of fiat currency—money declared legal tender by government decree.
Fiat money derives its value not from physical commodities but from public trust in the issuing government and its legal enforcement. This system relies on national credit and institutional stability. Without this backing, paper currency would have no purchasing power.
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Why Bitcoin Fails as Real Currency
Despite its popularity, Bitcoin does not meet the fundamental criteria of money. According to the joint notice issued by the People’s Bank of China and four other ministries, Bitcoin is classified as a specific type of virtual commodity, not legal tender.
Let’s examine this claim through the lens of monetary theory:
1. Medium of Exchange
While some merchants accept Bitcoin for payments, its adoption remains extremely limited. Most businesses and consumers still rely on traditional currencies like the RMB or USD. Widespread acceptance is crucial for any item to function as a true medium of exchange—something Bitcoin has yet to achieve globally.
2. Unit of Account
A core feature of money is its role as a standard measure of value. Prices are quoted in dollars, euros, or yuan—not in fractions of Bitcoin. Because Bitcoin’s price fluctuates wildly—sometimes changing by thousands of dollars in a single day—it cannot reliably serve as a stable unit of account.
Imagine pricing a house at "0.05 BTC" one week, only for its dollar equivalent to swing dramatically the next. Such volatility makes long-term contracts, accounting, and economic planning nearly impossible.
3. Store of Value
Although many investors treat Bitcoin as a digital gold or hedge against inflation, its extreme price swings undermine its reliability as a store of value. True stores of value maintain purchasing power over time; Bitcoin’s speculative nature often leads to bubbles and crashes.
Regulatory Perspective and Risk Awareness
The PBC has consistently highlighted the risks associated with Bitcoin trading and investment. These include:
- Price volatility: Rapid price surges and drops can lead to significant financial losses.
- Lack of regulation: Unlike banks or securities markets, Bitcoin transactions occur largely outside regulated systems.
- Potential for illicit use: Due to pseudonymous transactions, cryptocurrencies have been linked to money laundering and illegal activities (though this applies more broadly across the crypto space).
- No consumer protection: There is no central authority to reverse fraudulent transactions or compensate users.
Given these concerns, Chinese regulators have taken a cautious approach, restricting financial institutions from handling Bitcoin transactions and warning the public about speculative risks.
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Core Keywords in Context
Throughout this discussion, several key terms emerge naturally:
- Bitcoin
- Virtual commodity
- Fiat currency
- Medium of exchange
- Unit of account
- Store of value
- Digital assets
- Monetary policy
These keywords reflect both the conceptual framework and search intent behind queries related to Bitcoin's legitimacy and economic function.
Frequently Asked Questions (FAQ)
Q: Can Bitcoin ever become legal tender?
A: While some countries like El Salvador have adopted Bitcoin as official currency, most major economies—including China, the U.S., and EU members—do not recognize it as such. Its decentralized nature conflicts with national monetary sovereignty.
Q: If Bitcoin isn’t money, why do people invest in it?
A: Many view Bitcoin as a speculative asset or digital gold—a hedge against inflation or currency devaluation. However, unlike stocks or bonds, it generates no income, so its value depends entirely on market demand.
Q: What’s the difference between a virtual commodity and a currency?
A: A virtual commodity has perceived value but lacks legal status and systemic acceptance. It may be traded or collected but cannot be used universally for payment or priced consistently across goods and services.
Q: Does China ban all forms of digital currency?
A: China bans private cryptocurrencies like Bitcoin but supports innovation in blockchain technology. It has also launched its own central bank digital currency (CBDC)—the digital yuan—to modernize payments while maintaining control over monetary policy.
Q: How does fiat currency maintain value without gold backing?
A: Modern fiat money retains value through government regulation, economic productivity, public confidence, and controlled money supply managed by central banks.
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Final Thoughts
While Bitcoin represents an innovative leap in financial technology, it remains far from fulfilling the essential roles of real money. As Sheng Songcheng emphasized, it is best understood as a virtual commodity—an asset with speculative potential but lacking the stability, universality, and institutional trust required of true currency.
As digital assets continue to evolve, understanding the line between technological breakthroughs and monetary fundamentals becomes increasingly important. For investors and policymakers alike, distinguishing between hype and substance ensures more informed decisions in an era of rapid financial transformation.