Source: China Economic Thought and Practice Institute (micro-channel public number) Original title: "Libra currency (Libra) impact on the RMB payment system and Suggestions" Author: David Li, Tsinghua University, Chinese Academy of economic thought and practice of founding Dean, Chief Economist, New Development Bank; Li Kebo, Executive Vice President, China Institute of Economic Thought and Practice, Tsinghua University
Facebook recently published a white paper claiming to create a new type of cryptocurrency and set up an association to manage the currency, the Libra and the Libra Association. Given that Facebook, as a social media giant with a large user base of more than 2 billion, the impact of the emergence of Libra coins on the current monetary system is a new major issue for the macroeconomic management and financial regulatory authorities.
The nature and risk of Libra
Libra coins are different from other existing digital currencies. Their currency value is stable, and cross-border transactions are safe and convenient. In essence, it is the same as Alipay and WeChat payment, except that Alipay and WeChat payment are directly linked to RMB, and RMB is a dollar. Corresponding to a piece of money in WeChat and Alipay, the value of Libra is linked to a basket of currencies.
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However, the implication behind this difference is that Libra coins have the identity of an independent currency. It does not correspond to any sovereign currency and may develop into an important non-sovereign currency .
Since Facebook repeatedly claimed that it "passively generates money" and "the value of the currency is based on the value of the world's major currencies", so far, its actions have not caused hostility from central banks. But in an emergency, the management of the Libra currency is likely to become an extremely complex geopolitical issue.
In some special cases, some powerful countries are likely to force Facebook to intervene in transactions in individual countries, and even freeze and confiscate some of the country's Libra currency accounts. If Facebook has only controlled public opinion so far, then with the tool of Libra, Facebook will be able to make any country that uses a large number of Libra coins economically embarrassed, even the regime collapse.
Another issue that needs attention is that as more and more financial companies start trading with Libra, many financial assets will be denominated in Libra. It is conceivable that when the world economy and the financial system are subject to major fluctuations in the future, the governments of the world's major countries will require the Libra Currency Council to adjust the specific rules of Librae currency movements and transactions in order to expand or contract its currency issuance.
By that time, the Libra Coin Council has in fact become a super central bank, and the Libra coin will truly become an independent currency with its own independent monetary policy, which is completely different from the Hong Kong dollar. This prospect, the central banks of all countries must be well aware.
Since the Libra Currency Council has in fact become a super central bank, Libraic coins will truly become an independent currency. So, who will dominate its monetary policy? What is the goal of its monetary policy? Which country or region is based on the economic situation? Which country or region’s economic interests will be damaged? These are all demonic and complex international political issues.
The development potential of Libra
In the future, there are two types of areas where Libraic coins are most likely to succeed. One type is in some economically fragile countries . Their people do not believe in their own currency. They may be more willing to use Libra's currency to priced and save. Librae has the potential to become the currency used by local people in daily transactions. This is normally beneficial to the economic development of the countries concerned.
In contrast, in developed countries, such as the EU countries and the United States, Librae is unlikely to completely replace its currency. The reason is very simple, because the people mainly rely on their own transactions, and their shopping, dining, renting, etc. are all denominated in local currency. This is the basic rule of the central bank in the region. If you use a currency whose currency value is not one-to-one correspondence with the local currency. Going to trade will cause a lot of trouble for consumers and manufacturers out of thin air. They must always care about the exchange rate between the local currency and the Libra.
Another area of success for Libraco is cross-border transactions . The current cross-border transactions are extremely complicated. Libra coins have found a breakthrough for this problem due to technical reasons and the convenience of the network. This is why many financial companies have come to the forefront and have asked for the reason for joining the Libra Coin Association. Libra coins are expected to become a weapon to promote economic and financial globalization.
How should China treat super-sovereign currencies?
In view of the inevitable birth of super-sovereign currency, China should expand the cross-border use of the renminbi by using technology innovations such as WeChat payment and Alipay, accelerate the internationalization of the renminbi, strengthen the renminbi, and actively participate in the operation of Libra Management, layout of the new international currency game in the future. Specifically, there are several suggestions:
First , China must adhere to the principle that domestic transactions cannot use the Libra currency, and firmly establish the absolute status of sovereign currency.
Second , Chinese regulatory authorities should state in advance that they can limit the cross-border transactions of Libra in an emergency, in case there is a large amount of capital flight and economic crisis.
Third , as a big country, China must consider getting its major companies to join the Libra Currency Council. After all, Libra Coin may evolve into a major international currency in the future. Instead of rejecting it, it is better to join and participate in the formulation of its rules. In a sense, Librae may evolve into a new currency such as the SDR (the Special Drawing Rights) that the International Monetary Fund (IMF) has long wanted to operate. Since China actively participates in the operation of the IMF and its SDR, why can’t it What about the Libra Coin Council that participated in Facebook? The essence is the same.
Fourth , China has a large-scale social platform and e-commerce platform companies. It should encourage these platform companies to become more international and implement their own online payment tools in the international arena to enhance the influence of the RMB in international transactions. Only when the local currency is stronger, is it more capable of participating in the future issuance of international currencies.
For a big country like China, it should be soberly realized that the degree of internationalization of the renminbi is higher and it is also a sovereign currency, and the future world will certainly produce super-sovereign currency. This super-sovereign currency is not necessarily generated by Chinese-owned companies. In fact, due to restrictions in Internet transactions and cross-border transactions, it is unlikely that Chinese local financial institutions and enterprises will create such super-sovereign currencies. Therefore, in the process of promoting the internationalization of its own currency, China should actively participate in the operation and management of such super-sovereign currency. This is an active and pragmatic response.