The Optimal Discount Rate of the Capital on the Perspective of Capital Competition

This paper extends the market competition for the allocation of products and factors in mainstream economics to the field of capital, constructs a paradigm of capital competition from the perspective of capital price and discount rate. In this paradigm, any discount rate faces a trade-off between benefits and risks, the competition between capitals ultimately depends on the critical discount rate of assets. To achieve an optimal risk-return mix, it is required that a reallocation of credit between different levels of capital markets. In an open economy, different capital markets compete with each other by regulating discount rates and credit lines, respectively. The core of monetary policy is managing the discount rate so that asset prices at any one level do not collapse due to a lack of credit. Facing the Bretton Woods 2.0, China must be prepared to create its own base currency, an improper fiscal and tax reform may cause China to collapse without a fight. The discount rate has completely opposite effects on virtual and real wealth, which leads to a dilemma of wealth management, under this circumstance, the dual-track system is probably the only institutional path that can have it all.