Babbitt column | The principle of digital legal currency 3: important information brought by Facebook Libra

I. Introduction

The emergence of the Libra white paper has brought anxiety to governments, central banks, commercial banks, and businesses around the world. Everyone suddenly realized that the world has changed. Many people who thought that there was no value and financial markets would never use the blockchain were shocked by this huge influence. But the shock is only the beginning, and there are more influential events to happen. Now we are like the era when oil lamps are still used a hundred years ago. The sudden appearance of light bulbs makes us not ready in the mentality.

The first thing to know is that we are now in a historic and dramatic transformation that can take up to 100 years to complete. Because at the same time we are going through three major changes, not one. Usually only once in a history or no change. This time, there are three changes happening at the same time. Whether we like it or not, it is quietly coming. Fortunately, people in our time have encountered such a historic revolution. These three major changes are:

Currency reform : We are experiencing the biggest monetary reform in 320 years (starting from 1694) – digital legal currency, this year is the fourth year. 320 years ago, in 1694, the world's first central bank (the Bank of England) and the first time the central bank issued the national currency (£), this legal currency system also lasted 320 years. Most countries in the world now issue central currency (but there are exceptions). If more than 320 years of coinage changes have been made, many people are expected to bring huge changes in the financial market. The digital currency reform has just begun, and it may take two or three years to digest. Because of the change in coinage, it has also caused tremendous changes in usage, regulation, and the market, especially in the cross-border market.

This reform is different from the bitcoin reform that some people mentioned before. Bitcoin is not a legal currency, and many countries today do not recognize Bitcoin as a currency, including the United States. This reform is a digital legal currency recognized by the state and supports the national currency. The state will not ban, but encourages support. This is also one of the cores of this article.

Financial Technology Reform : We are experiencing the largest financial technology reform in 520 years (starting in 1494) and this year is also the fourth year. In January 2015, The Wall Street Journal considered this to be the largest financial technology innovation in the world in 500 years. The reason was that the West (Rome) developed a double-entry bookkeeping method in 1494. This bookkeeping method changed the world economy at that time. It can be said that modern The Western economic system was only established in 1494. After the double-entry bookkeeping method, there may be a modern stock market, auditing, accounting system, and taxation. These are based on the double-entry bookkeeping method, and the world has not fully digested the double-entry bookkeeping method for more than 500 years.

Although the blockchain appeared in 2008, it was not really discovered by the financial community until 2015. The "3-style bookkeeping method" brought by the blockchain is the first time that human beings have a new bookkeeping method in 520 years. Although the blockchain brings the 3-style bookkeeping method, there is still no formal introduction of the 3-style bookkeeping theory in the world, and there is no three-entry bookkeeping method of engineering and standardization. The infrastructure has not yet come out, and there is no educational material. Therefore, it will take some time for the implementation of financial technology to become popular.

Despite this, in some areas, there have been big moves, such as pharmaceutical supply chain management. The United States has already produced standards in 2018, and 2019 is the first year of experimentation.

At present, most of the blockchain reforms are concentrated on the currency. This financial technology will take many years (or maybe a hundred years) to digest. The reason is very simple. The double-entry bookkeeping method has not been fully digested in 520 years, and there are new breakthroughs every few years. The 3-type bookkeeping method is more complicated than the double-entry bookkeeping method and will undergo many generations of improvement.

Legal reform : Today we have encountered legal reforms that have only been encountered for thousands of years. This may take longer and the impact is the biggest. We began to calculate from the Moses era, when the Old Testament era, humans began to develop and use the legal system, including legislation, justice, and law enforcement, are expressed in natural language. After thousands of years of improvement, humans can use the executable code for the first time to become a legal contract, and it is automatically executed, does not require law enforcement units, and does not require the approval of the judicial unit, as it has been approved by the parties in advance. In 2018, the British Law Commission proposed to put smart contracts and blockchains into British law. The author's Beihang Digital Society and Blockchain Labs listed enforceable laws as one of the blockchain Chinese dreams [1]. Therefore, this legal reform may take a very long time to digest, maybe it will take hundreds of years. This year is the second year of legal reform.

Second, the major reform of digital legal currency

In 2015, the Bank of England announced that it would issue digital legal currency, and did a lot of work in the early stage, but unfortunately announced the abandonment in 2018. On July 18, 2018, with the support of the US government, IBM announced that it would issue stable currency, which is the digital dollar, and the world's first digital legal currency. Later, JP Morgan Chase, the World Bank, 14 banks, VISA, etc. announced that they would issue digital currency. The Chinese central bank also announced the news this year.

From June 18, 2019, we have experienced a great change in our minds for two months, at least in China. For a time, everyone is concerned about stable coins and digital legal currency. The People's Bank of China has also been reporting on the development of digital legal currency in the past, and wants to become the world's first digital legal currency.

Recalling that in 2018, the author spoke in various places and talked about the importance of stabilizing coins. Most people responded that stabilizing coins is worthless, no research, no importance, and some institutions take a very hostile attitude. In a blockchain meeting, the author had to declare himself to come from Mars to ease the atmosphere, because many participants said that the blockchain has no value and Chinese financial institutions will not use it.

However, the author has always believed that this is an important innovation in history. Since August 2018, various nouns have been used to describe the importance of stable coins, such as “the battlefield of the military”, “ten aircraft carriers have arrived at the Bund”, “5 Only tigers [2], etc., the use of words is getting heavier, because the situation is getting more and more serious. Later, on June 18, 2019, Facebook’s Stabilization Coin White Paper came out, and the importance of this matter was also described as “Zhuge Liang’s Street Pavilion”. The stable currency finally shocked the world and shocked China. The anxiety of everyone has already been predicted. In fact, as early as 2016, the Bank of England has predicted that the International Monetary Fund will release amazing speeches in September 2017, including the US Congressional hearings in 2018. We can all hear subversive and revolutionary speeches. But until the white paper of Facebook found that this is true.

This Libra incident has made domestic and foreign banks anxious. Some people may think that this is caused by the United States. Bank of America should be very happy. However, this is not the case. American commercial banks are also very anxious and want to seek cooperation with China from different channels to alleviate anxiety, but this anxiety is worldwide.

The world has undergone tremendous changes in the past two months, and many governments and central banks have responded relatively. The United States supports the opposition of other countries in Europe, Asia, Africa and other regions. The authors have heard that Europe and Africa are the most fierce. They use the new "currency hegemony" or the new "currency colonial policy" to describe this matter. They believe that Africa has experienced past colonial policies, but now it has to undergo a currency colonial policy.

In the ideological change from July to August 2019, three new concepts emerged and were accepted. Although some concepts have been published before, it is only in these two months that everyone recognizes these three concepts.

Third, the first important concept: stable currency becomes digital legal currency

Stabilizing coins used to be stable digital tokens. Because the price is stable, many people think that there is no way to make money from it, so there is no need to study. Moreover, the previous stable currency was an illegal currency, and the price was unstable. The US regulatory authorities repeatedly pointed out that the famous stable currency was a fraudulent group. This is not the stable coin that the author has been recommending since 2018, and the author has also talked about these illegal "unstable" coins in many articles. The author thinks that they are "fake stable coins" [3].

However, in 2018, there were real stable coins, and the real stable coins have a new concept. A true stable currency is a stable and legally stable currency, and it is supported by the state. Such a stable currency is a digital legal currency. “Stable currency becomes a digital legal currency” is an important concept. This is the stable currency issued by IBM under the guarantee of US government units, and linked to the US dollar, which changes the history of stable coins, even the history of the world currency.

The simple stable currency has become a one-to-one currency “digital dollar” linked by the United States and the French currency. The controversy is endless. I remember that when I talked about this concept in August last year, some scholars believed that the digital legal currency must be issued by the central bank, because the legal currency can only be issued by the central bank. IBM is neither a central bank nor a bank. How can their stable currency be a digital dollar?

They forgot that before 1694, there were no French currency in the world from the central bank, and now not all legal currency is issued by the central bank. In 1694, the world's first central bank (the Bank of England), also the world's first central bank issued a legal currency, so the legal currency is not necessarily issued by the central bank. The reason why the French currency is legal currency is because of state support, not necessarily by the central bank, and the central bank can become the central bank of the country because of government support.

Stabilizing the currency is a digital legal currency. It is not just the author's opinion. The teacher of the National Development and Reform Commission, Zhu Youping, is also one of the supporters. At the time, the head of IBM's digital law currency, and the former head of the Singapore Central Bank, declared in August 2018 that it was a digital dollar. After ten months of waiting for the concept, the International Monetary Fund (IMF) did not continue to cause controversy after the report was issued in May 2019. The National Monetary Fund believes that the stable currency supported by the government is the digital legal currency!

Before July 2018, no one would have thought that the world's first digital legal currency was actually a stable currency issued by the company. July 2018 is really an important day in the history of world currency.

Forecast : Many countries or multinational companies will have strategic layouts, such as deploying digital legal currency in important areas, high ground in new currency competition, digital legal currency may also alliance, enter a new currency competition [4]; no country-supported stability The currency may be closed [5].

Fourth, the second important concept: digital law coins start small

The digital currency that the Bank of England used to mention was a large, national, central bank system, but the digital currency that was issued in 2018 started with small, technological, local, and experimental currencies. These two layouts are just the opposite.

One reason for the Bank of England to abandon digital currency in 2018 is because the system is too complicated and the project costs too much. Americans are smart, think that such a big project, do not need to invest a lot of money, should start small.

Digital currency will cause new types of currency competition. This new type of currency competition is competition in speed, security, regulation, and policy [6]. This is not the same as the traditional currency competition. The traditional currency competition is in exchange rate and interest. The development of new digital currency should also be solved "quickly", and it is not possible to start digital legal currency after 10 years.

Forecast : Digital currency will appear in small, regional and usable nature, slowly integrating large digital legal coins, and finally appearing on the blockchain Internet. At that time, it will be "chain full of the world" [7], and the financial system will be completely new. appear. Humans used to use the infrastructure of horse-drawn carriages to maintain their cars, and would not use old-fashioned financial systems to support digital assets and currencies in the future.

Fifth, the third important information: digital currency changes the world

What is the impact of digital legal currency on the country and financial markets? Perhaps everyone does not know, the Bank of England has always said that the emergence of digital currency will change the market, monetary policy, banking structure, and contribute to economic development. The Bank of England also proposed a big central bank model to indicate changes in the structure of the central bank.

The Bank of England has never given up commercial banks and has not given up traditional French currency. Therefore, digital and traditional French currency should coexist, and central banks and commercial banks should coexist. In these two coexistence environments, the Bank of England believes that this is a historic monetary reform for more than 300 years. The Bank of England has also sought out some economists to study, and their reports show that GDP will increase and the entire market process will change.

This view is not just the view of the Bank of England. Later, the central banks of the United States, Canada and many countries have published research reports. The following is a research report by American universities. It is said that the digital currency changes the entire financial sector and the monetary system and the monetary policy.

US research believes that digital currency will change the structure of the entire financial market

In addition, some scholars believe that digital currency is only digital cash, will not change the structure of the central bank, will not change the structure of the bank, will not change the market, will not change the process, the digital currency is only a technology project, the digitization of cash.

Is it true that their views are correct, or are the results of the UK and the United States correct?

Libra’s incident represents the correct view of the United Kingdom and the United States. If the digital currency is just a technology project, in the past two months, everyone has no need to be nervous. Libra is a stable currency issued by a foreign company. Even if it is a digital legal currency, the market will not change, and the bank will not affect it. However, many governments and central banks in this incident have expressed concern and even anxiety. Many foreign banks (including commercial banks in the United States) have been in contact with other banks and other central banks for the past two months, indicating that the situation is very serious. Their emphasis on Libra and anxiety represent the correct views of the UK and the US!

Now everyone is talking about Libra changing business models, national monetary policy, currency and transaction regulation, people's lives, companies (such as issuing stable coins or accepting stable coins). If these stable coins (digital currency) do not change these, everyone goes home to sleep, no need to be nervous, Libra discussion meetings held in various parts of China do not need to open, and the PBC does not need to send relevant news every few days. The fact is that the huge impact of Libra is now obvious to all.

What deserves our deep thought is that Libra is only the digital law coin 2 (the digital currency issued by the institution or the bank), and the foreign digital law coin (the digital currency of the central bank) has not appeared yet. The 2nd army has caused anxiety in the world. What will happen to a foreign army?

Some people think that the bank's electronic money, such as Alipay's electronic money, is already very strong, and China is far ahead of the world in this field. But these are still electronic money, unlike digital currencies.

Therefore, the digital legal currency is not a science and technology project, but a historical event that changes the world. It is the world's largest currency reform in 320 years.

Forecast : Digital currency, blockchain, and new economy will open the fourth industrial revolution of mankind. It is no longer the traditional currency, traditional economics, traditional financial markets, traditional networks, textbooks need to be rewritten, new markets, new processes, and self-financial era. Advent, new regulatory technology emerges, and humans move toward the digital society, digital government, digital courts, and digital banking.

Six other important concepts

In addition to bringing in 3 important digital legal currency information, Facebook also brings some important information:

Value Network : Facebook proposes the concept of “currency network”, which is also the “value network” proposed by the author in 2017, that is, the Internet will carry money or assets [8]. This is the second generation of the Internet. In the past, the Internet only supported information sharing. The new network needed to support currency or asset transactions.

Since the financial era : When the US president commented on Facebook, he said that Facebook is a bank, saying that everyone can be a bank in the future. This is “self-finance” [9], which brings a huge financial market. change. The next step is a new type of business behavior. The new business behavior is no longer just a currency, but a new economic model of money plus business. In the past, we only discussed whether to sell goods or whether to make any products, but a new economic model is not just to make products, or even to make a currency, to promote our business in the currency we manufacture.

Now the speed of the banking system has been approved : in addition, foreign media have publicly criticized the current banking system, saying that they are slow, poor service and backward technology. Some people say that if anyone uses a digital currency for cross-border payments, they will never return to the bank! The current banking system is really much slower than digital currency.

Banking systems need “high-speed” processing of business like movie “Kung Fu”: competition in new currencies, speed is the most important

SWIFT will be replaced : More than 100 stable currency projects are currently being planned, and Japan has publicly announced that it will establish a system to replace SWIFT. This is an epoch-making thing. Because in the past, it was a mission impossible to build a system to replace SWIFT. Nowadays, Japan, which has always adhered to everything in the United States, has publicly announced that it will build a trading platform to replace SWIFT. This means that the old era is passing, and even the most important institution of the old era, SWIFT, will be replaced. In 2016, the blockchain has received a lot of attention, but no matter who proposes to build a system to replace SWIFT, everyone will think it is a joke, impossible!


[1]. Cai Weide et al., “The Blockchain Chinese Dream III: The Automatic Execution of Law Will Subvert Law Research, Legal System and Legal Practice”, 2011.03.30 .

[2]. Cai Weide, He Juan, "The application of blockchain is not a wolf but a tiger is coming", 2011.06.17.

[3]. Cai Weide, “True and false stable coins! Blockchain needs to be supervised | DeepHash column”, 2010.05.30.

[4]. Cai Weide, Jiang Xiaofang, "The new currency competition is coming? Yes!", 2014.06.21.

[5]. Lin Jiayi, "Countries supervise the siege of Facebook's currency, the Fed's solidarity! What kind of war will this be?", 2011.06.20.

[6]. Cai Weide, Jiang Xiaofang, “Analysis of Four Key Elements of New Currency Competition”, 2010.08.17.

[7]. Cai Weide et al., “One of the Chinese Dreams of Blockchain: Blockchain Internet leads China's scientific and technological progress”, 2011.08.07.

[8]. Cai Weide et al., “Blockchain Internet”, 2017.6.3.

[9]. Cai Weide, "The world is taking a road that has not been passed: the US president does not support Facebook Libra, really?", 2011.0.27.

Author: Cai Weide

Director of Digital Society and Blockchain Laboratory of Beihang University, Chief Scientist of Tiande Technology, Major Project Leader of National Ministry of Science and Technology, Director of Blockchain Internet Lab of National Big Data (Guizhou) Comprehensive Experimental Zone, Tianmin (Qingdao) International Sandbox Research Dean of the Academy, Honorary Dean of the CCID Research Institute of CCID (Qingdao), President of the Blockchain Industry Professional Committee of China Asia Economic Development Association, Director of the North Mujin District Block Chain Committee