Libra may have a huge impact, China should actively participate in the digital currency revolution

Article source: China Business News
Original title: "Libra or a huge impact China should actively participate in the digital currency revolution"

The emergence of the Libra concept is bringing unprecedented shock to the world. Recently, the US House of Representatives held two consecutive hearings to ask questions about Facebook's Libra project.

Although Facebook claims to want Libra to be a payment tool and will not compete with sovereign currencies, from Libra's attributes, it is not just a payment tool, but a digital currency. It is foreseeable that once the Libra project advances, it will profoundly change the current international monetary system, and this change will be subversive.

From the history of currency development, sovereign currency is not in the beginning, and issuing currency is not monopolized by the state. In the 18th century, commercial banks in the United States issued a large number of bank vouchers. These bank vouchers were all circulated by the reputation of the issuing bank, and actually played the role of banknotes.

Due to lax supervision, bank notes issued by many banks exceeded their gold and silver reserves, which eventually led to the indiscriminate use of bank notes and exposed the fragility of the financial system. During the Civil War, due to the massive storage of gold and silver by the people and the exchange of gold and silver with bank vouchers, the banks were on the verge of exhaustion under the run, and were eventually forced to stop cashing. The bank vouchers depreciated sharply due to the inability to cash, the money supply was seriously insufficient, and the monetary system faced collapse.

In response to the crisis, the United States established the National Banking System, which was authorized by the federal government to issue national bank vouchers. The bond guarantee issued by the Ministry of Finance was recognized and accepted by people. The circulation of national bank vouchers increased rapidly, while bank vouchers basically Stopped and quickly squeezed out of the currency circulation field. It can be seen that sovereign currency also wins from different currency competitions, relying on the country's credit.

To this day, the Hong Kong dollar is still issued by three commercial banks, not by the central bank. The note-issuing bank issues a Hong Kong dollar and submits the equivalent dollar reserve to the monetary authority. Therefore, banknotes can be issued by the central bank or by commercial banks. The key to circulation is the trust of the public. As long as the public approves and accepts, it can easily become a currency of circulation. It is such a feature that provides space for various digital currencies represented by Bitcoin, and the development of network computing technology provides real support.

The development of digital currency can be divided into two phases:

The first stage is a digitized currency represented by bitcoin . Bitcoin completed the conceptual design, seized the painful point of currency spamming, used the blockchain digital technology to decentralize, virtualized an anarchic currency world, and turned digital currency from concept to reality. However, the digital currency itself has some inherent problems, including a fixed amount of currency issuance, a lack of reserve assets, and a very unstable currency. These characteristics make it difficult for Bitcoin to become a real currency.

The second phase is based on the Libra project . Libra's design is fundamentally different from Bitcoin.

First, Libra has reserves as a support. There is a basket of currencies for labeling and pricing. The specific method is that for every Libra issued, Facebook will deposit $1 or equivalent in other currencies into its own bank. Selecting a series of relatively stable assets such as cash and government securities as collateral can effectively maintain currency stability, prevent currency spamming, and is less prone to inflation.

Second, Libra maintains decentralization, using blockchain technology and network transactions, which helps to reduce the various costs of traditional physical financial institutions, reduce the transaction costs of the entire financial system, and greatly improve Libra's liquidity.

Third, Libra was designed from the very beginning in accordance with the positioning of the international currency. It draws on the design concept of the International Monetary Fund's (IMF) Special Drawing Rights (SDR) and is linked to a basket of currencies. Under this model, Exchange rate volatility is reduced to a minimum, and countries' currencies can determine a relatively stable redemption ratio, which is a "global currency" that is "a veritable".

Fourth, Libra's payment function will be very powerful. Libra is currently only planned to be open to institutional users, but considering that Facebook has about 2.7 billion user groups around the world, it is a very powerful ecological platform. Once Libra is open to individual users, Libra It will quickly become a new currency form and become a widely accepted payment tool worldwide, which is basically in line with Libra's plan to achieve service revenue and interest income.

The emergence of Libra will profoundly change the international monetary system and adjust the world financial landscape:

The first is to intensify currency competition . Once Libra is widely used, it will become an international reserve currency. Libra actually poses a challenge to the existing monetary system, especially to the dollar's world currency status. Therefore, Libra's currency road will not be smooth sailing, and it will inevitably face the encirclement of the vested interests of the US dollar. It really kicks off the war between sovereign currency and digital currency. This can be confirmed by the reaction of all walks of life in the United States. The President of the United States issued a distrust of Libra, and Congress quickly conducted a hearing. Facebook promised to temporarily cancel the Libra plan without obtaining regulatory support, which is against Bitcoin. There is a fundamental difference in the attitude of the appointment.

The second is to comprehensively change the social credit system . The monetary system is based on credit, and the birth of digital currency is precisely because the national currency has caused inflation to lead to public distrust. Once Libra succeeds, it is likely to cause a chain reaction, leading to a change in the credit system, and the operating mode of the financial system and capital market will fundamentally change.

The third is the test of currency regulation . If Libra can become a currency, even under the system of full reserve, the change in the quantity of Libra supply will lead to fluctuations in the global money market, and there will be coordination problems between different currencies. As a currency issuance agency, Facebook will become an important institution equivalent to the Federal Reserve and the European Central Bank. Libra's lending rate will become an important benchmark for the interest rate system. Once the full reserve system is liberalized, Facebook will become a global “network federation”. ", the test of the currency control of various countries.

The impact of Libra is huge and unknown. The domestic financial community has also realized this. Experts such as Zhou Xiaochuan and Zhu Min have pointed out Libra's subversiveness and feasibility. China's global leadership in mobile payments is facing the subversion of Libra, and the growing influence of the renminbi in international currencies may also be due to the suspension of Libra.

The central bank should actively participate in the transformation of digital currency, accelerate the research and launch of China's digital currency , and gain a place in the global digital currency.