The two hearings for Libra will be held in the United States, and the results will be smaller, which will affect the market trend of the digital money market in the next period of time; to the point that it will even decide the world's financial and future in the coming decades. Currency system.
As the first cryptocurrency of technology company Facebook, the US regulatory level attitude will largely determine whether Libra will have the opportunity to launch as scheduled in 2020. Unsurprising regulation has become Libra's first mountain.
At that time, Libra’s announcement could be said to have thrown a bomb around the world. From their respective positions and demands, to the central banks and monetary authorities, they were mainly worried, and they were worried that they might stabilize the existing financial Monetary policy poses a threat; down to technology companies and the encryption industry, it is based on appreciation and encouragement, and they all want to be eager to try in the same field.
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So, will the introduction of Libra weaken or strengthen the hegemony of the US dollar, what will the US think about Libra? After the hearing, perhaps a rough answer can be drawn.
Dollar Hegemony: From Gold Standard to US Dollar Standard
"Currency War" is a very famous best-selling book. Whether we have a factual point of view or not, the greater significance of this book is that it has given many people a financial enlightenment. Especially in the context of the early liberalization of Chinese liberal arts and sciences and the weak education of economics and general education, it is impossible to ask everyone to understand professional financial knowledge as soon as they come up. Popularized and properly interpreted readers will attract more white to understand the currency and The role of financial instruments in international competition: This is a battlefield without smoke.
The most important event in the history of modern currency is the signing of the Bretton Woods Agreement and the decoupling of the dollar and gold. The former was signed in 1944. The United States relied on a strong gold reserve to determine the monetary system linked to the US dollar and the gold, and the rest of the currency and the US dollar. In 1971, the Nixon government announced that it would stop the US dollar exchange for the US dollar and complete the transition from the "gold standard" to the "dollar standard."
After the implementation of the US dollar standard system, although the US dollar has experienced several depreciation, the world economy that has been in operation for more than 20 years has in fact formed a US dollar-centered monetary system. International commodity pricing, transaction settlement and value storage are inseparable from the US dollar. Equivalent to the fact that people all over the world are using the income of labor to purchase US Treasury bonds, and Americans are taking advantage of it.
Not all countries like to live under the power of the dollar. The EU tries to challenge the United States with a unified circulation of the euro. In recent years, China's rise has also enhanced the voice of the renminbi, but the currency that can truly challenge the dollar has not yet appeared.
The emergence of digital currency is like a major breakthrough in the basic science level in an industry. Once again, everyone is standing on the same starting line. The United States hopes to continue to maintain its leading position, while new players are overtaking at the waiting curve.
Libra is the starting gun. Digital currency and blockchain have been born for more than 10 years. Although the regulatory attitudes of different countries are different, there are absolutely many elements in the dark and the composition of the plan. In a peaceful environment, technological change is the only opportunity to achieve a weak win, and no one wants to miss such opportunities in the times, including businesses, countries and individuals.
Does Libra strengthen or weaken dollar hegemony?
If Libra is able to escape the regulatory robbery and launch it around the world, relying on the massive users in Facebook and the rich payment scenarios provided by 100 Libra nodes, the total amount of money generated will inevitably threaten the US dollar. It’s as if the dollar has been used for a long time, and everyone can no longer go back to the era of gold settlement.
What is more advantageous than the US dollar is that the efficiency of using Libra for international settlement has been greatly improved, the handling fee has dropped drastically, and the traditional bank wire transfer channel has been crushed. At the same time, billions of people around the world do not have bank accounts and cannot enter the modern financial system. The launch of Libra will promote more dreams of inclusive finance.
From the perspective of Libra's currency mechanism, its use of a package of legal currency and government bonds as collateral means that the dollar is highly flexible in its importance. As Libra's liquidity increases, it may cause the dollar to weaken, repeating the mistakes of gold in the past. In warm boiled frogs, Libra will one day replace the dollar.
Although it is a Facebook-initiated project, Libra's headquarters is registered in Switzerland, which is currently a taboo for US regulators.
Of course, in terms of overall national strength, the United States is still in the forefront of the world and will most likely be part of the most important Libra cash reserve. And the above assumptions are based on the premise that national regulators have turned on the green light for Libra. In fact, each country is now very wary of Libra and may be more difficult to release Libra than the United States.
China has the most developed mobile payment scenario in the world. In theory, promoting digital currency like Libra has advantages over the United States. At the first time Libra announced, Ma Huateng said: There is no technical difficulty, it depends on whether regulation is allowed. The tit-for-tat attitude illustrates Tencent’s ambitions in this field.
What are the consequences of Libra becoming mainstream?
Currency is one of the most important tools for central banks to intervene in economic operations. Once the main currency in the market is controlled by private companies, rather than being decided by the ruling authorities, it is not easy to judge whether it is a good thing or a bad thing.
On July 5, Zhou Xiaochuan, the former central bank governor, said in a speech: As a payment system and digital currency, the influence of monetary policy transmission should be considered, which is also a consideration for financial stability.
Although we discussed Libra's advantages in cross-border payments, inclusive finance and other fields in the previous section, this is only from the perspective of ordinary people. Starting from the macroeconomics, the development of modern economic history cannot indeed leave the government's intervention completely. This is one of the reasons why Hayek's "currency non-stateization" cannot be fully realized.
The reform of the financial system has never been done overnight. The change of a small factor may trigger the butterfly effect. Libra is a good start, but what resistance will be encountered in the process of moving towards the ideal utopia, we dare not rumor.
What is certain is that the development of digital currency to this day is no longer possible to force people back to 10 years ago with a ruthless prohibition. The gains and losses of a city and a pool cannot stop the pace of history. The development of digital currency in regulation must become mainstream. With the application of Libra entering the lives of people all over the world.
This article was originally created by ZB Innovation Think Tank