Dialogue with Mikko: The essence of Libra and DCEP in the eyes of currency scholars

In 2019, Libra and DCEP are undoubtedly the most influential events in the industry. From the niche blockchain financial innovation to the financial game of big powers at the macro level, many people should have experienced the sense of confusion surrounded by the tide of the times. So how do you find your way in the tide of this era?

Mikko is a currency scholar, the founder of Zhibao (www.wisburg.com), and an early investor and researcher of bitcoin in the industry. He has studied macroeconomics, financial markets, and currency theory for nearly 10 years. , Can help us better understand the future development of the industry.

So we conducted an interview with Mikko on Libra and DCEP, DAO, and some macroeconomic issues.

In addition, if you want to study monetary theory, macroeconomics, and central bank policy in-depth, but have no way to do it, Mikko's wisdom castle will definitely bring you a lot of gains.

The following is the interview text, enjoy:


X-Order: What do you think of the development prospects of both DCEP and Libra? What impact will they have on the current world financial environment? Mikko: First of all, I don't think Libra has any independence, because all its funds will be deposited in banks that are regulated by the Federal Reserve or other sovereign regulatory authorities.
About Central Bank Digital Currency and Libra, Mikko, https://www.bilibili.com/video/av73836265
In the modern currency banking system, banking finance has always been a license business. In China, the financial system is more special because it is closely related to finance , the fiscal-financial-monetary trinity ; the Bank of England (the Bank of England) was established in private form, but was placed under the Ministry of Finance in the 1930s. The establishment of a central bank within the fiat currency system is itself a fiscal system that serves the country. In such a structure, the financial system is just a "quasi" (approximate) market-oriented system. Payment, settlement and settlement of licensed banks are completed through a centralized central bank. There is no way to decouple Libra's entire capital flow from the traditional financial system. He needs to open an account with a bank and settle the settlement on behalf of Libra. Unless Libra itself becomes a "licensed bank", otherwise he is a second-tier deposit dealer. . Bank of England Governor Carney said last year that technology companies could directly access the Bank of England's balance sheet and RTGS (payment) system.
Throughout the financial history of the United States, there have been many cases of private currencies wishing to reach their sovereign balance sheets. At present, there is an official who once served in the Federal Reserve. After retirement, he worked on a narrow bank project. He hoped that all the money would be stored in the Federal Reserve (100% reserve), which is essentially a way to leverage the traditional financial system and the assets and liabilities of sovereign authorities. Table completed design of stablecoin. So Libra has nothing new. It actually wants to engage in its own private currency business through the traditional financial system and the balance sheet of sovereign authorities. There are many similar examples. For example, Starbucks consumer cards are essentially Starbucks coins. The business model of Starbucks prepaid cards may be better, because after buying a Starbucks consumer card, it can no longer be converted into US dollars. Starbucks does not need to provide acceptance.

In contrast, Libra has a problem of acceptance . In my opinion, it should not be regarded as a digital currency in the first place, but a private currency, which is accepted by the Libra Association. The collateral accepted by Libra is US dollar deposits and other high-quality US dollar-denominated collateral (such as US Treasury bonds).

DCEP is different. DCEP is strongly promoted by the monetary authorities of sovereign countries. Behind it is a strong political commitment (credit and guarantee). You cannot refuse to use "DCEP", just as you cannot refuse to accept RMB cash, and every time Individuals need to fulfill their tax obligations through legal tender. So there is a substantial difference between DCEP and Libra. DCEP is top-down and Libra is bottom-up. The latter does not have a strong political commitment , so it must communicate and negotiate with central banks and regulators around the world. Is it possible to build their own business model.

Therefore, in the entire fiat currency system, Libra and DCEP are not a level competitor at all. DCEP is far higher than Libra in the entire fiat currency hierarchy . Libra's currency is even lower than bank deposits and Alipay balance. But everyone in the industry may hope that Libra becomes the creation god of private currency. It can bypass the sovereign sector and form a commercial private currency system independently, but in my opinion, this is unrealistic.
X-Order: So if Libra is as large as Alipay, even if the country is a counterparty, Libra is not accepted because of taxation rights, but users are willing to use it to conduct transactions. Can he break away from the US dollar system? Mikko: First of all, the central bank was later than the private bank. Or, after the concentration of the private bank became higher, it became essentially the central bank. The human settlement system and payment system can be carried out between private individuals in a spontaneous manner, without any public sector intervention, there is no so-called legal currency, and coinage rights can also be dispersed. But when there is no central bank, some banks are already functioning as settlement and settlement centers. These banks are called currency center banks. If there is no People ’s Bank of China, Alipay can assume this function as the central bank. This is not speculation. Mr. Yi Gang, the governor of the People ’s Bank of China, expressed this in the sharing of the Bank for International Settlements. China ’s digital payment agency actually performed the central agency. Part of the bank's payment and settlement functions even backlashed into the banking system and the central bank. The PBOC eventually had to reshape the entire payment system through a series of reforms (such as the establishment of a networked company), and relegated power to the central bank.

Therefore, payments and settlement can be done entirely by the private sector-money itself is a technology , and technology itself need not be highly tied to sovereignty. Inter-bank settlement and settlement during the gold standard period can be converted into deposit balances through gold reserves. No other assets are even needed as a source of value for currency issuance.

But now, the asset reserves of all major central banks are no longer gold, but government credit (national debt). This is why I believe that the current settlement and settlement cannot be conducted without the government or the sovereign department. Assuming that Alipay or ICBC has undertaken a large amount of settlement and settlement, their settlement accounts are still completed within the central bank system.

X-Order: The support behind the US dollar system is the US national credit. If the US national credit is turned into a public group's credit, will there be a new currency to replace the US dollar? Mikko: This is why I have been thinking about this problem. The reason I study stablecoins but did not do stablecoin projects is that I have not found the answer in my heart. Because the value of almost all stablecoins is based on USD collateral, these digital currency projects just strengthen the US dollar system, allowing more people to use US dollars to price digital assets instead of using digital currencies to price commodities . I have been looking for a way to jump away from the US dollar and build a system to form my own pricing cycle and purchasing power. It has nothing to do with the US dollar, but I haven't thought of an answer at present. X-Order: I understand what you said. When you first traded with Bitcoin, it was a betrayal of Bitcoin. The so-called stability does not mean the stability of the currency itself, but the things behind it.

I hope that after a period of time, no matter how other things change, the purchasing power is constant, and I need something I call stable to help me transition. But this thing is too abstract, it is difficult to embody. In reality, it can only be undertaken by currency, but in reality, currency cannot perform such duties well.

Mikko: I can ask you a question, do you think money is an intermediary?

X-Order: I think currency is more like a channel, it is an intermediary.

Mikko: I have read a book called "Philosophy of Money", and I especially like the sentence in it. People generally think that money is an expression of the relationship between things and things, but in this kind of expression (such as What money can buy) or quantity liquidity (money is constantly used), it has this relationship. This is why humans are after money rather than commodities. Because money has become more and more important in human culture, it has a relationship with all materials. This is the dual nature of money, and it is not an intermediary. The entire currency circle now relies on the liquidity provided by fiat currencies. The US dollar has established a channel, just like a black hole, sucking digital currencies into the US dollar system and establishing a relationship. If you want to build an independent currency system, or a parallel system, you need to get out of this channel.

X-Order: I think this is actually just creating another dollar-like thing, there is no difference in essence.

Mikko: Centralization and decentralization are one. When everyone is central, it is decentralization, so this is monism. This is a starting point for my understanding of currency.

X-Order: So how did the US dollar build its own system?

Mikko: We studied the balance sheet of the Federal Reserve for more than 100 years. In fact, the Fed's balance sheet initially had a lot of gold reserves, that is, the issuance of US dollars was tied to gold assets. But later, gold was not as efficient as the physical settlement and settlement of the bank (financial) system. The Federal Reserve ’s own assets also gradually abandoned the gold because of the two world wars and bought a large amount of national debt (equivalent to debt monetization). Exited the stage of history.

During the development of the US dollar system, the explosive growth of trade volume also generated a large demand for US dollar settlement. The US Federal Reserve supports banks to settle and clear the US dollar through a large amount of currency creation. In other words, the US dollar has established a global offshore-on-shore settlement system.

It is obviously impractical for Libra to replace the US dollar, because its currency functions are different. It is very difficult to define the currency function of Bitcoin. Casino chips also cover an account book, but the function performed by the chips is only the settlement and settlement within the casino. If the speculative transactions account for a large proportion of a certain digital currency, then the nature of this "ledger" will be obvious.

In addition, the official website of overseas regulators even has various documents to teach you how to register a bank and how to obtain a license. In this case, for a company of Facebook's size, it should not be a white paper first, but all the US regulatory agencies should be run through, register a bank, and then apply to open an account with the Federal Reserve, so it is It will be possible to start a private money business. Like the TNB in ​​the United States, they are already applying to the Federal Reserve to open a master account. And Facebook didn't even do that, which is quite incredible. Compared to Libra, JPM Coin is not the same. JP Morgan Chase already existed when there was no Federal Reserve. He was originally a private central bank responsible for the entire settlement and settlement network system in the United States. Now JPM is a digital currency. It is possible that Counter the central bank. X-Order: What do you think of the more distant future of Bitcoin?

Mikko: I expect there will be two paths. One is the so-called naturalization path, which is the naturalization of the sovereign sector into a part of the traditional financial system and an alternative asset.

The second path is to become an asset of a parallel universe, circulating in a small circle between cyberpunk and geeks.

In the first way, it must first be able to reach the balance sheet of traditional financial institutions, enter the banking system, non-bank sectors, fund companies, ETFs, etc., which is compliant and auditable. Once clearly defined, the attributes of Bitcoin's alternative assets will not be worse than gold.

The Bank of Canada recently conducted a survey on how many citizens hold bitcoin. As a result, the proportion of holdings is not low, which indicates that in daily life, some people have accepted it as part of asset allocation, but it is not used for Undertake the function of liquidation. In the second set of solutions, Bitcoin is an independent "dark web", which is independent of the settlement outside the entire sovereign network, which may require the support of a large number of centralized nodes. Eventually it will be characterized as a terrorist or anti-government organization. When it comes to efficient settlement, it means that KYC and AML cannot be regulated on this network, and tax evasion will occur. Therefore, the problem of all digital currency industry projects is that there is no way to solve the problem of taxation. So the state will crack down on these projects.


X-Order: Do you think that this so-called decentralized governance, similar to DAO, does it work in a reasonable way? Or do you think that a good governance model should look like?
Mikko: I have never been involved in the field of governance because I think the problem of governing people is a very difficult and serious issue. Organizations such as DAO, if they only do some public welfare or do not involve value distribution, in my opinion it is an interest group. Everyone is doing some work purposefully, but once it involves distribution, there are benefits to go. Coordination involves governance, because governance is essentially a matter of distribution. I think that autonomous organizations usually find themselves inevitable on the road to government. On the contrary, some institutions that are becoming more and more centralized will become a good breakthrough for autonomous organizations and help it move to a better state, such as expanding its scale …

X-Order: Even people who like anarchy do not mean to oppose the government, but they always feel that the current government brings a lot of problems and discomfort. They think that the current government distribution is problematic, but not particularly good. Workaround.

Mikko: Because once the issue of benefit distribution is involved, the only way for humans is to reshuffle the cards, which is very efficient, so the final problem that autonomous organizations face is the process of so-called liquidation and shuffle.

Organizations are cyclical. Just like wealth distribution, the so-called political cycle and economic cycle are nothing more than a so-called distribution cycle. As long as the so-called community is involved, this distribution issue will definitely be involved. The most sensitive issue of distribution is currency. Currency is the core of distribution, and the essence of sovereignty may be the right of distribution.


X-Order: Is the Central Bank pushing DCEP to compete with the US dollar? In the future, do you expect such a large-scale currency war?
Mikko: That would definitely, but I do n’t like the word currency war. I think it emphasizes conflict too much. I do n’t quite agree that the entire currency war system is the RMB and wants to replace the US dollar. I think if DCEP is tied to RMB internationalization Like the euro, it may be used as the settlement currency in many sovereign countries and eventually upgraded to the Asian dollar. However, I think it will take a long time for the RMB to reach the order of USD. Renminbi is an asset issue and a debt issue. When someone wants to buy several assets in Renminbi, someone also wants to use RMB to borrow money, and someone is willing to issue RMB-denominated corporate bonds. Second, do n’t just look at exports. China used to place too much emphasis on exports. Imports and exports must be treated equally. The so-called internationalization cannot be internationalized with one foot. Now the call for RMB internationalization often has asymmetry. We are overly concerned about RMB. Assets, overly concerned about exports; ignored RMB liabilities and imports.


X-Order: U.S. stocks are still relatively high now. Basically, U.S. stocks are pushed up by QE, but it has a debt ceiling. If this is similar to Ponzi ’s game of gradually pushing up in the secondary market, this game When do you think it will end, or in what form will it end?

Mikko: A large number of eschatologists have emerged over the past 20 years that US debt will be unsustainable. The stock is rising and it will eventually collapse. The U.S. fiscal system is based on fixed income. The expenditure is determined first, and then the government raises funds. The government monetizes the issuance of government bonds if it does not raise funds, which is equivalent to printing money for the Fed to undertake. Will rise indefinitely.

X-Order: So do you support MMT (Modern Currency Theory)?

Mikko: I don't support MMT, I just think that MMT provides a kind of thinking, not a solution. MMT raised a very good question, how to decouple the framework of GDP from the framework of currency. Everyone talks about debt / GDP, but these two are two completely different statistical frameworks in economics. They can't be put together and eliminated, and they won't yield any results.

So I think that the issue of debt is not necessary for investors to predict its sustainability, because human society is supported by debt in the era of credit money. If you can predict this, it doesn't make any sense what assets you buy, which is equivalent to the collapse of the entire credit system, especially the collapse of U.S. debt. And it must have unlimited circulation, and the expenditure will only increase.

X-Order: Do you think those big capitals in the United States are still optimistic about US stocks?

Mikko: Debt king Gundrak thinks it is most important to allocate assets in emerging markets. He said at the time that everyone felt that Japan was great in the 1980s and that Japan would always rise. In the 1990s, the Japanese economic bubble burst, and everyone went to the European market. As a result, in the late 1990s, Europe was no longer feasible. After joining the WTO, many people invested in emerging markets in Southeast Asia. Later, everyone thought that the United States was the hope of humankind, and invested a lot in US stocks. But now, everyone feels that the US market is also about to collapse. X-Order: Do you think the future will be in the era of low interest rates for a long time? How long may the cycle be?

Mikko: I find it difficult to judge for a long time, but it is difficult to see a sharp rise in interest rates next year, because next year is a general election year. In fact, interest rates have fallen for more than 40 years.

X-Order: What kind of events do you think will bring more people to the cryptocurrency or blockchain in the past year or two?

Mikko: It is likely to be some killer applications of cryptocurrency in the payment field. For example, JPM Coin is what I look forward to most . Because currency itself is very central in the field of payment and settlement, I am very optimistic about JPM doing this.

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