Libra's development challenges continue: Chinese officials suggest it as a foreign currency, reserve or depository

Recently, Sun Tianqi, chief accountant of the State Administration of Foreign Exchange, said at the 3rd China Finance 40th Yichun Forum that “Libra should be regarded as a foreign currency and must be included in the overall framework of China’s foreign exchange management. Otherwise, it is recommended to ban Libra.” To set aside a level for Libra to enter the Chinese market in the future.

From June 18th, Facebook launched the Libra white paper, which called “Building a simple, borderless currency and financial infrastructure for billions of people,” which led to extensive discussions among officials around the world.

Undoubtedly, Libra's goal is to have global attributes, but can it really become a "currency" of global unity?

1. Time and business-promoted Libra

The economist Milton Friedman once said that money is just a veil. The real support for the operation of money is often the result of the interweaving of multiple factors. Of course, this includes the talents, political and economic resources that we have agreed upon, and of course the organizational models of different types of state machines. Wait. "Unless we can recognize this, there is almost no invention owned by mankind. When something goes wrong, it is more harmful to society than money." If you can't recognize the multiple logic behind the money, wait for us. Maybe not just a mistake so simple!

In fact, the birth of Libra is no accident, it is the dual role of the background of the times and the basis of reality.

As early as 2008, the global financial crisis broke out again. The drawbacks of the traditional financial system and the monetary system were exposed. The national credit was wiped out, and the collapse of the legal credit currency beliefs eventually gave birth to a new payment system, Bitcoin. The birth of a legal currency, a centrally centralized legal currency system (digital currency).

Bitcoin, for example, is a virtual currency based on a node network and a digital encryption algorithm. However, digital currency and digital currency still have their limitations, including the inability to regulate the economy; the regulatory vacuum, the lack of security in the transaction process and price instability, and the establishment of a complete price fluctuation mechanism. In the long run, the development of the digital economy will eventually move in the direction of “legal digital currency” (stable currency). The birth of Libra is based on the background of this era.

“Bitcoin and Facebook's Libra represent different stages of currency development, but in a completely different way. Bitcoin is unlicensed, fully decentralized, deflated, and unstable. Libra is licensed and more focused. Controlled by supply and demand, linked to fiat currencies, " said Charles Hayter, co-founder and CEO of CryptoCompare.

What Hait calls “supply and demand” means that Facebook and its partner companies can adjust the supply to match the amount of other assets in the reserve, thus effectively maintaining a stable price as demand changes.

In a way, Libra is more like a variant of digital virtualization of “sovereign currency” (US dollar, renminbi, etc.).

The birth of Libra is most directly driven by Facebook's own operational requirements. Ren Zeping, president of Evergrande Economic Research Institute, summed it up: "Libra is the product of Facebook's attempts to use precipitation data to expand its business structure and find new profit growth points."

The blockchain can solve the development problems facing Facebook and enhance its voice in the lifeline of the new economy. With Libra, Facebook can once again cut into the payment field, segment the market, and be able to create a “social + payment” ecological closed loop by becoming a financial technology service provider.

2. Libra's "Sovereign Challenge"

However, Libra's new attempt in the field of digital finance is not perfect. The issue of issuer risk and national regulatory challenges are the biggest problems, and Libra is the most overlooked obstacle on the global currency road.

In fact, the dollar-backed digital currency built by the Libra project will challenge the sovereign currencies of various countries. More likely, in the near future, it will strongly replace the sovereign currency of the backward countries, and it has indeed aroused the vigilance of many sovereign countries. Libra is considered by many to be a potential competitor to the future super-sovereign currency in the process of receiving widespread attention.

In the near future , Ren Zeping, director of the Evergrande Economic Research Institute , specifically mentioned Libra or the global monetary system in his long title "Libra: Principles, Impacts, Opportunities and Challenges of Digital Money" , which naturally evolved into a super-sovereignty. Currency, and this is an important reason for the cautious attitude of Li sovereigns to sovereign states.

Specifically, it can be summarized as follows: one is Libra or replaces some national sovereign currencies; the other is the difficulty of foreign exchange control in various countries; the third is that the implementation of monetary policy is more difficult; the fourth is the difficulty of increasing anti-money laundering and counter-terrorism. In fact, the key element is the concern of countries about monetary sovereignty.

If Libra will completely or partially replace the national sovereign currency, this will inevitably affect the national monetary policy and fiscal policy. First, Libra will impact the implementation of monetary policy in various countries. This not only means that sovereign states are more difficult to regulate capital flows, but because some commodities may be priced by Libra, some small countries' currencies may be completely replaced.

Second, Libra will spawn a new "European debt crisis." As a global currency, Libra will undoubtedly reduce transaction costs across borders and promote the development of cross-border circulation and capital markets. However, the financial capacity of countries will also be weakened, and countries seem to be on the same boat to share global risks. Ren Zeping concluded: On the one hand, the government is unable to levy a "cold tax", the government's fiscal revenue is shrinking; the second is that the government is unable to implement the fiscal deficit monetization, the government's financing capacity is declining; the third is that the government relies excessively on fiscal policy, monetary policy and The fiscal policy is not uniform or triggers a new "European debt crisis."

3. Libra and a basket of reserves 1:1 anchored into a paradox

According to Libra's white paper , “using a series of low-volatility assets—such as mortgages from cash and government bonds from a stable and reputable central bank—see Libra's issuance mechanism based on cash and government bonds. Above.

According to Tsinghua University’s Dr. Long Baiqi’s “Libra from the History, Current Status and Future Evaluation of the Monetary and Financial System” , Libra’s distribution mechanism is explained as follows: “If the Libra Association is regarded as a central bank that stabilizes cryptocurrencies, then Libra It belongs to the whole reserve bank and its reserves are legal or government bonds. Libra also opened a reserve account to the whole society. This means that Libra is the only “coin” institution in Libra's monetary and financial system, and no other institutions are available. The right to cast coins. Traditional financial services, such as payment/loan and loan, are facing fundamental changes. Because users can be regarded as central bank reserve accounts at Libra public address, user account payment and clearing are completed immediately in the public chain, and payment is made. Service providers will no longer have the opportunity to create a pool of funds, nor can they control the user's account and create financial leverage. This forces service providers to focus more on providing account management services and developing other types of profitable services. Licensing institutions (Libra Bank) ) will no longer be able to create money, can only lend existing deposits, deposits can be shares of Libra Bank Other funds accumulated profits and dividends have not borrowed. Society as a central bank, will no longer provide deposit protection schemes and bailouts for the Libra Bank .Libra bankruptcy will lead to depositors for their losses. "

And this has to mention the legal currency issuance mechanism. The issuance mechanism of the legal currency means that the currency issuer (usually the central bank) issues the currency by imposing certain assets as reserves. The legal currency is mainly based on the national credit issuance currency, and the national debt is the most important reserve. Because the demand for money in a specific period is unstable, it is also affected by the multiple factors of natural disasters, man-made disasters, population factors, and national policies. Although the price of legal currency is often relatively stable, the monetary system is not stable. Through intervention in the market, the central bank tries to maintain a relatively flat market operation, and controls inflation/tightening and interest rates within a certain range. However, it is worth noting that the operation of the legal currency system often receives the unstable effects of the financial system; Excessive intervention in the market to maintain the stability of the French currency price is not conducive to the operation of the entire financial system.

Although Libra claims that its reserve is a basket of legal tenders to keep Libra's currency relatively stable, in the view of Zhao Wei, deputy secretary-general of the Center for Financial Innovation and Internet Finance Rule of Law at China University of Political Science and Law, the 1:1 reserve issuance method is correct. The Libra Association has become a difficult paradox.

"For Libra, it is also good for other so-called stable tokens that have already appeared or are about to be released, as long as the collateral value (or reserve) behind them is not lower than the price of the token, and can be free through tokens. Redemption, then the market has enough motivation to "melt" it, Libra can only become a medium for exchanges for holders to exchange reserve currencies (especially the US dollar), and it is difficult to become a currency exchange medium to enter the market. On the other hand, this will cause a chain reaction, which will at least lead to the “insufficiency” of the token circulation, that is, when the circulation of the contemporary currency is less than a threshold (in terms of the increase in market share), the member institutions will not accept Libra. Such tokens are used as internal settlement assets. "Zhao Wei believes that there are still many problems in the development of currency and payment in the course of its historical development, and he has reservations about the development of Libra.

Today's Libra is similar to the US dollar after the Second World War. The Bretton Woods system establishes a world currency system centered on the US dollar. The US dollar is linked to gold. At the same time, it is linked to a basket of currencies, and an adjustable fixed exchange rate is implemented. relatively stable. However, the Bretton Woods system violated the principle of the stability and development of the national currency of the countries, and the system eventually ended in failure. Instead, the floating exchange rate system and the Jamaican system of non-monetization of gold were used.

Wen | Zhou Wenyi Edit | Tong Source |