Viewpoint | Libra's game is not over yet!

In the words of Mark Twain, the rumors of the demise of the nation-state were overstated.

After the actions of France and Germany to prevent the release of the Global Stabilization Coin project, US lawmakers issued severe warnings to Libra members, Mastercard, Visa, Paypal and four other companies have withdrawn from the Libra Alliance. This is not only a heavy blow to Libra's parent company Facebook, but also reminds us that the government's power is still unmatched. The Bitcoin revolution has been going on for a decade, and it is extremely difficult to challenge the state’s monopoly on money.

But it is still too early to write Libra's obituary. Last week, at the Monetary Management Alliance meeting in Geneva, 21 of the 28 members of the Libra Association signed the agreement. Even if Libra can't survive, other players who are not as controversial as Facebook are incubating their own stable currency plans. If those also fail, well, then we will only have Bitcoin forever.

Having said that, the resistance to regulation is enormous. Last week, the Financial Action Task Force and the Bank for International Settlements all stated that stable currencies such as Libra pose a major threat to anti-money laundering (AML) work, financial stability and currency competition. At the same time, some experts, including Gary Gensler, former chairman of the US Commodity Futures Trading Commission, believe that Libra should be regulated as a security.

But this does not mean that the stable currency is bound to have no big development. With the continued development of technology, coupled with geopolitical and global economic needs, the government will eventually have to accept or compete with stable currencies. As Rob Kaplan, president of the Federal Reserve Bank of Dallas, said last week, sooner or later someone will come up with a solution.

Libra has been an important driving force for this trend, and has sparked international debates on this topic and has inspired developers and businesses to become interested in virtual currency. In turn, it should also be thanks to Bitcoin, the first cryptocurrency that provides a completely separate legal currency alternative. Without the success of Bitcoin, this will not happen.

Only when it comes to stabilizing coins, no matter what mainstream solutions emerge from the early stages of this chaos, they need to coordinate directly with the government. (I'm talking more about reserve-based stable currencies, a basket of cryptocurrencies like Libra, and stable coins that anchor one-to-one products like USDC or Gemini Dollar, rather than intelligence based on Dai. The guarantee token for the contract.) Libra and its imitators will need to negotiate with the regulator for a long time, modify some designs, and help the agency adapt to those parts that they cannot change.

Libra's way forward

First of all, for Libra, nothing has been lost.

The Libra Association is supported by the Swiss Financial Market Regulatory Authority (FINMA), which provides a respected and regulated foundation for its project development. From here on, it will focus on legitimacy. Although there are support from Mastercard and Visa, Libra will have more resources and greater influence, but Libra's financial resources are sufficient for constructive negotiations with authorities in different countries.

Libra has to be step-by-step, with citizens in some countries having access, while others cannot, and increasingly sophisticated geolocation technologies should prevent people in less-than-friendly jurisdictions from reaching it. If Libra can reduce cross-border transaction costs in these regions and enable new forms of smart contract-based commerce, introducing new digital identity models to include the poor in the financial sector in a cost-effective and secure manner, then these countries will Faced with greater pressure, the government is required to relax its restrictions.

Libra has some strong advocates. One of them is Guo Taiming, the boss of electronics giant Foxconn, which has business relationships with tens of thousands of manufacturers around the world. The former Taiwanese presidential candidate recently called on Taiwan to accept Libra, arguing that this could be a bridge to China's upcoming digital currency.

Although some developing countries such as India are hostile to Libra and other cryptocurrencies, other developing countries are actively supporting such currencies as a solution to their financial challenges. These countries, including those in the Caribbean, are experiencing expensive cross-border transaction costs and “reducing risks” by foreign banks, for which foreign banks have to lower their compliance with these countries due to increasingly stringent US compliance requirements. Agency agency banking relationship.

Bermuda recently stated that it will accept tax payments from the stable currency USDC. The Eastern Caribbean Central Bank, which deals with nine national monetary policies, is experimenting with blockchain-based central bank digital currencies.

Of course, the Caribbean fish is much smaller than India. But its financial influence far exceeds its own strength. Over the years, island nations in the region have used tax breaks and other benefits to attract the world's largest banks, insurance companies, mutual funds and hedge funds, which now manage nearly $1 trillion in financial assets. Moreover, the small population of the Caribbean Sea is an ideal test site.

In addition, Libra may be supported in the UK, and all major UK banking industries see the development of financial technology as the key to survival after Brexit. Bank of England Governor Mark Carney said in June that the central bank plans to provide liquidity access to technology companies, breaking the bank-centric tradition of money management, and the technology company he thought of was the Libra that just announced the plan.

Innovation competition

If London moves forward on stabilizing coin innovation, where will other financial centers like New York and Hong Kong go? Many US officials worry that if Washington's position is too strong, financial innovation institutions may give up the US market.

Last week, Senator Mike Rounds (the Republican Senate) wrote a support letter to Libra members, in which he sent Senators Brian Schatz (Democrat Senator) and Sherrod Brown (Democratic Senator) to Mastercard, Visa. Threatening letters with Stripe are described as ominous and warn that transitional regulation will curb US innovation.

At the same time, geopolitical tensions and economic uncertainty will eventually force governments to find alternatives to current monetary policies. China is developing its own digital fiat currency, which will bring advantages to its economy and trade and reduce its dependence on the dollar.

Another challenge is that as the global economy weakens, trillions of dollars in private and public debt burdens will pose a threat to Western economies, raising concerns about rushing into the dollar and fears of a collapse of competitive currencies. Well-known investment strategist Raoul Pal said on the Hidden Forces podcast that non-nationalized currencies (such as Libra) based on a basket of currencies may enable countries to avoid the dangers of currency wars and continue to trade when negotiating debt write-downs with creditors. .

Who is Libra's successor?

Whether the answer is based on a basket of digital currency solutions, or a token that anchors one-to-one legal currency, or a digital currency issued directly by the central bank, Facebook and its Libra members are not the only ones who want to get a stable currency commitment. Big company. These companies have got rid of Facebook's reputation and feel that they are in a better position to negotiate with the government.

Retail giant Wal-Mart is one of the heavyweight participants in exploring similar library projects. Wal-Mart is the largest employer in the United States. Like Foxconn, Wal-Mart is also a core entity in the global supply chain. As for Mastercard, don't leave it out of Libra as a departure from cryptocurrency and blockchain development. After recently expanding the recruitment of blockchain experts, the credit card company and payment network provider may position themselves as important players in the emerging stable currency industry, which is closely related to government officials around the world.

Jorn Lambert, vice president of digital solutions, said when I asked him to explain the reasons for leaving Libra: "This is not to say that we don't think Libra has long-term value or no longer has value. The problem is that when the regulatory framework is very uncertain They asked the founding member states to become full members of the legal person. We don't actually fully understand the meaning of membership. So we have to wait for the regulator to clarify the framework before taking on this responsibility."

Lambert said that the future direction of Mastercard will be centered around the “public-private partnership”. He even envisioned a scenario where the central bank was responsible for casting and burning, issuing and receiving tokens, while private companies with retail customer experience, such as Mastercard, were responsible for distribution and customer maintenance.

The idea of ​​working with the government itself can be repugnant by some cryptocurrency advocates. But the good news is that this is not a zero-sum game. I believe that the birth of a digital currency based on fiat currency will make bitcoin's position surpass gold and become a major unrelated safe haven to avoid political risks.

Before the local cryptocurrency achieves internal stability, scalability, and widespread adoption, if the mainstream economy wants to accept programmable currency, it needs an instant expandable currency with stable value. Libra's experience is that this currency must also be friendly to the government.


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