Ba Shusong, Chief Chinese Economist at HKEx: Libra will make some economies increasingly dependent on fiscal policy

Beijing News reporter Hou Runfang

Source: Beijing News

Editor's note: The original title was "Ba Shusong: Libra Will Make Some Economies More and More Dependent on Fiscal Policy"

Beijing News (Reporter Hou Runfang) In the past 2019, digital currency is undoubtedly a hot spot in the financial field. Among them, the virtual cryptocurrency Libra that Facebook claims to launch is of particular concern. What impact will Libra have on the existing financial system? At the 13th Asian Finance Forum held today, Ba Shusong, chief China economist of the Hong Kong Stock Exchange, said that with the expansion of Libra in some economies, it will form part of the replacement of existing fiat currencies in different countries. The government's right to issue currency is subject to corresponding restrictions, which in turn restricts monetary policy, which may make these economies increasingly dependent on fiscal policy.

Ba Shusong believes that Libra will have three effects on the existing financial system. First, from the perspective of monetary policy, once the scale of Libra is relatively large, it may extend from the payment link to the loan business and form a new credit creation function, which will have a direct impact on the US dollar system and monetary policy. For other small economies, the monetary policies of different economies may be inconsistent with Libra's supply target.

"Monetary policy must balance many goals: GDP growth, CPI, balance of payments, etc., but Libra's goal is to maintain its system operation and stability, which may be different from the policy goals of different countries at different stages. There are inconsistencies or conflicts. "

Ba Shusong said that in some small countries and some areas with extreme inflation, if local residents choose Libra, they will replace their sovereign currency.

Ba Shusong further stated that with the expansion of Libra in some economies, it will form part of the replacement of the existing legal currency of different countries, and the government's currency issuance rights will be restricted accordingly, which will restrict monetary policy, which makes these Economies may increasingly rely on fiscal policy. These economies are restricted in their ability to issue currency, and this means of fiscal deficit is also constrained accordingly, and there may be a significant increase in the debt of some economies.

Ba Shusong also said that Libra will also have an impact on the business model of existing economic institutions. "What people expect most from Libra is cross-border payments. This will have a direct impact on the bank's intermediary business and change the business model of existing financial institutions. At the same time, it will also increase the difficulty of foreign exchange management. The exchange of local currency and reserve currency combinations in various countries is more rapid. Libra's circulation involves the combination of Libra's reserve currency, financial reserve assets, and the legal currency of each country, so the complexity of cross-border synchronous operations will increase significantly. In addition, The emphasis on point-to-point transactions and the benefit of the people has also made it more difficult for central banks and regulators to track cross-border capital flows. "Ba Shusong said.