There is a classic view in economics: Nobel laureate Milton Friedman said that inflation is a monetary phenomenon, and some scholars are even more radical, claiming that all economic phenomena are monetary phenomena.

However, this theory has been repeatedly challenged over the years. Western central banks have maintained near-zero interest rates for over a decade, yet the effectiveness of monetary policy has diminished year after year, and economic growth remains sluggish. This has led many to reconsider: Is it really a monetary phenomenon?

So now a new perspective has emerged — all modern economic phenomena are fundamentally fiscal phenomena. Why? Because contemporary money is entirely backed by sovereign credit, supported by fiscal authority, and no longer a commodity.

Look at works like *The Deficit Myth*, Modern Monetary Theory (MMT), and last year’s *The Mother of Money and the Anchor of Risk* by Liu Shangxi, former director of the Chinese Academy of Fiscal Sciences. These works all emphasize the same core idea: the essence of modern money is credit, not commodities.

How did this shift happen? Looking back, in ancient China, shell money and knife money, in Europe the gold standard and silver standard, money was primarily a commodity, with its commodity nature at the forefront. Back then, money could be used practically, to make tools, and to store value.

With the advent of money shops and the establishment of modern banking, money gradually gained credit attributes, and this transformation took place. Today, paper money can still be burned for warmth, representing the last remnants of its commodity nature, but digital currencies stored in accounts? They have completely become pure credit tools.

What is the true and only function of digital currency? Paying taxes.

All sovereign currencies we hold, aside from their secondary uses like purchasing goods or storing value, fundamentally serve one purpose: paying taxes to the issuing government. This is the ultimate reason for their existence. Just like the example of Robinson Crusoe’s island — in places without a government, gold is merely a production tool, and paper money is just fuel; neither can truly be considered currency.