Director of the Institute of Financial Law of the Central University of Finance and Economics: the circumstance of digital currency issuance

Recently, Facebook announced that it will develop the stable currency Libra and its supporting wallet Calibra, claiming that its mission is to establish a simple, borderless currency and financial infrastructure for billions of people. Facebook's Libra currency program can be described as a wave of waves, promptly attracting attention and global debate. As the world's largest social networking platform, Facebook is different from the virtual currency issuing institutions in the past. It is ready to use its rich resources to launch a special grand currency plan, which may combine super-sovereign currency with innovative technology. The infinite imagination and extreme panic that subvert the world's monetary and financial systems.

For Facebook's currency program, China and many sovereign countries have paid close attention and heated discussions. In particular, some international organizations, such as the International Monetary Fund (IMF), have proposed their own currency schemes to address this challenge. It is rumored that the US House of Representatives Financial Services Committee has sent a letter requesting that it stop development. The letter mentions: "Libra and Calibra may help a new global financial system centered on Switzerland, which will challenge US monetary policy. And dollar status."

Why is this happening? First of all, Facebook, as the world's largest social platform, has 2.4 billion active users, which exceeds the total number of users of China's WeChat and Alipay payment institutions. Once Facebook is successful, it will have an unprecedented scale effect. Secondly, the application scenarios, scope of use, and business circle mentioned in Libra's white paper are extremely large. It makes digital currency no longer just stay in the virtual space, and there will be more application of physical scenes. Again, what is even more surprising is that Libra's currency program has a large number of mainstream financial institutions involved, especially internationally renowned payment institutions such as Visa and Mastercard. Libra is more likely to be integrated into the mainstream financial market. Fourth, the Facebook currency plan actually got the acquiescence of the Fed. To date, the Fed has not expressed any objection or disagreement with the Facebook currency program.

The current discussion on Libra is still sweeping across governments and academic forums. For Facebook's currency program, we don't have to over-panic and over-interpret, emotionally involved in the current enthusiastic response to this plan, but should carry out more rational reflection and predictive analysis, and put forward the theory of digital currency phenomenon. Analytical framework and future global regulatory framework.

Historically, although digital cryptocurrency has only been for a decade, from Bitcoin to Ethereum to Facebook’s Libra currency program, thousands of digital cryptocurrencies in ten years, without the supervision of sovereign states, are like The dislocated wild horse ran all the way. In particular, represented by bitcoin, prices have skyrocketed under various power speculations, triggering a rare phenomenon in the history of world finance. Bitcoin and its underlying technology blockchain are regarded as beliefs by technical geeks. Ethereum has turned the currency into an extremely simple behavior, which triggered the global ICO frenzy in 2017, and the Chinese financial regulatory authorities were not allowed. Do not promptly supervise the issuance of virtual currency trading ICO. From Bitcoin to Ethereum to ICO, the scope of application is mainly limited to virtual space, which is a virtual asset or digital asset. This round of big discussions triggered by Facebook's upcoming release of encrypted digital currencies means that digital currencies are likely to enter a new phase.

From the earlier JPMorgan to Facebook's currency program, digital cryptocurrencies were issued by institutions with strong influence in physical space, and financial institutions were involved, and digital cryptocurrencies were applied to various business circles. It has a great demonstration effect on a global scale. If the supervisory authority let it go, its various resources with various resource conditions may follow suit, and regulatory arbitrage, from physical space to issuing digital cryptocurrency, may lead to the loss of control over the issuance and trading of digital cryptocurrencies, and the squandering of sovereignty. The country’s coinage rights and the loss of the coinage tax by sovereign states have hit the current sovereign state monetary system and the international monetary system, so the issue of digital cryptocurrency is particularly serious.

Under the impact of digital cryptocurrency, traditional monetary theory and even the entire financial theory have also suffered enormous challenges. In traditional financial theory, the nationalization of money is something that everyone is familiar with and is used to. Currency is a kind of transaction certificate endorsed by national credit and guaranteed by national sovereign force. It has been controlled by the sovereignty of various countries in modern times. However, in the past 100 years, because sovereign countries have often over-resourced, spammed money, and often even led to serious inflation, resulting in loss of national wealth and economic and social unrest.

Many economists expressed dissatisfaction with the over-issuance and spamming of monetary authorities in various countries and tried to propose new solutions. One of the most representative theories is the non-stateification of the currency proposed by Hayek. He pointed out that the issue of credit currency over-issuance under the control of sovereign states is insurmountable by itself, so it should return to the non-state road of currency issuance, such as letting companies issue currency or let other market entities issue currency. This idea has inspired many people's imagination, but has never found a solution to achieve. Until the birth of Bitcoin, people saw the hope of Hayek’s currency non-state claim.

In the past 100 years of history, how to stabilize the currency of the currency? After the collapse of the gold standard, countries around the world have not solved this problem very well. Although some scholars have called for a return to the gold standard, it is impossible to return to the gold standard. There is also the issue of the anchor of money. What kind of assets are anchored to stabilize the currency of the currency? How does the number of currency issuances match and adapt to economic development? A series of problems in traditional monetary theory still need to be resolved in the field of digital cryptocurrency. The practice of non-state currency is Bitcoin. The value of Bitcoin is still extremely unstable. Although it controls the total circulation of Bitcoin to 21 million, it avoids the over-currency of the currency, but the currency is closer to deflation. Unstable performance. Therefore, the bitcoin that has skyrocketed has not been able to achieve its ideal as a world currency.

Although Bitcoin is known by its name as "coin", in fact, the supervisory authority mainly regards it as a digital asset or a virtual currency, not a currency in the strict sense of finance. Since the gold standard of the currency cannot be returned, and the issuance of the currency cannot be bypassed by the sovereign state, then how to judge Facebook’s coin-issuing behavior and predict its next step, we can focus on the following aspects: Thinking.

First, digital currency is the general trend of global economic and financial development. No sovereign country can avoid it and cannot avoid it. At present, digital cryptocurrency on the market is mainly issued by Internet companies, and has formed a considerable user scale. Although sovereign countries do not recognize encrypted digital currency as currency, it has in fact possessed the characteristics of private currency and played in some business districts. A huge role. People refer to the current bitcoin, Ethereum, etc. as private currency, including Libra once issued successfully, are the digital currency of the business circle issued by non-sovereign countries.

Second, the issue of digital currency by sovereign countries must be put on the agenda as soon as possible in order to cope with the challenge of BIGTECH digital cryptocurrency to seize the coinage rights. The Chinese monetary authorities have been researching digital currencies for many years and have clearly stated that they will soon launch sovereign digital currencies. The United States, the United Kingdom, India and other countries are studying the issue of digital currency, and Libra may accelerate the impact of sovereign countries on the current encrypted digital currency. Whether sovereign countries can launch digital currency and when to launch digital currency, what is the path of the launch, these issues should be resolved as soon as possible.

Third, digital currencies are characterized by globalization and super-sovereignty. Who is leading the global super-sovereign digital currency and how is it regulated? The current sovereign countries are facing major decisions. Is it possible for Bitcoin, Libra, etc. to develop into a de facto world currency or a super-sovereign global currency, or is it led by sovereign states to explore the formation of global or world currencies? All countries in the world should work together to discuss solutions.

For now, it is almost impossible for Libra to bypass the sovereign state as a stable currency. In particular, wanting to become a so-called super-sovereign global currency will inevitably touch the US monetary policy and the status of the dollar, and even the interests of other sovereign countries, will inevitably lead to the reaction or resistance of sovereign states. Some members of the US Congress have asked questions about the Libra currency program. “This will lead to serious privacy, transactions, national security and monetary policy issues. Not only will Facebook have more than 2 billion users, investors, consumers and the wider global economy should be concerned about this.” Although the Fed did not say it would involve intervention However, members of Congress have already taken the lead in raising questions, once again proving that under the current conditions, sovereign states are the circumstance of digital currency issuance. In the future, the Libra issuance plan will work, pending the release of financial regulatory policies by the US government and other sovereign countries, and will depend on the attitude of the international monetary organization composed of sovereign states.

Based on the analysis of the above problems, the author believes that there are three options for discussion on the future development of global digital currency.

The first option: the collection of Bitcoin, Ethereum and even Libra in the future will be gradually incorporated into the regulation, which is called the “staining scheme”. Recognizing the global currency or world currency that has in fact already had world influence, and gradually adopting various regulatory states into the regulatory track, there are preconditions, but there are many technical problems to be solved in the process of compilation or dyeing. The recognition is difficult.

The second option: the issuance of super-sovereign international currencies or global currencies by the current International Monetary Fund or similar organizations. After the launch of the plan by Libra, the IMF International Monetary Fund also claimed that IMFCoin will be launched soon. The introduction of digital currency in the current IMF package, namely the Chinese scholar Yao Yudong and Yang Tao's eSDR proposal, may be the best choice for digital currency advancement under current conditions.

In the third option, a new digital currency international organization was initiated by various sovereign countries to promote the issuance of a global digital currency. Or the major digital currency issuers actively cooperate with sovereign state regulatory authorities to jointly launch a digital currency national organization of a global nature. It will take time to create a new international organization for cooperation and coordination.

All of the above three options have certain feasibility, but no matter which one is, it is inseparable from the intervention of sovereign states and the response of the monetary regulatory authorities. Although the optimists are full of expectations for the Libra release plan and give high praise, we still have to return to the real world. The current world is a world composed of sovereign states. Since the currency is currently a financial instrument for credit endorsement and supervision in sovereign countries, whether Facebook can implement the Libra plan, and wait for the final decision of the US Congress, also requires Switzerland. The financial supervisory authority intervened reasonably. Facebook's Libra currency program has drawn the attention of sovereign countries and will inspire them to further accelerate the exploration of sovereign digital currency research and development. Therefore, in general, the Libra plan is an important opportunity to accelerate the global currency into the digital currency phase, perhaps to promote the global digital currency regulatory framework, and to stimulate contemporary economists and financial scientists to rethink monetary and financial theory and financial supervision. The system keeps pace with the new round of scientific and technological revolution and financial reform.

Source: China Finance Magazine

Author: Dr "Central University of Finance and Director of the Institute of Financial Law"