Digital currency is becoming a consensus. Why is there still many obstacles to Libra landing?

Author: Foca Think Tank

Source: Surging News

Cryptocurrencies rose during the Chinese New Year holidays, with a market value increase of 34% in the past seven days. Among them, Bitcoin rose 13% during the Chinese New Year holidays. Behind this, digital currencies are increasingly recognized by mainstream institutions.

The International Monetary Fund has published a 20-page white paper stating that digital currency is the future of currency and including digital currency as its top priority for 189 member countries in 2020;

The International Settlement Bank (BIS), which has always been short on digital currencies, has undergone a subtle change in its position following the release of the Libra plan on Facebook. President Carstens bluntly "supports central banks to issue their own digital currencies."

According to a recent BIS survey covering 21 developed economies and 45 emerging market economies, 20% of the central banks surveyed may publicly issue “central bank digital currencies” in the medium term, 90% of which are from emerging market economies body.

In fact, more than 70% of central banks are already doing some framework and conceptual research on issuing central bank digital currencies.

Among them, the digital currency of the People ’s Bank of China “is ready to come out”, and after the U.S. regulators successively held digital currency hearings, their attitude towards cryptocurrencies changed from “fear and worry” to “support” — A Reg A + exempt securities token issuance, opening the way to restart the initial coin offering (ICO) market is empirical.

However, Libra, which ignited this digital currency boom, is still trapped between ideal and reality.

On the one hand, countries are supervising the "fire", and members of the association are hesitant;

On the other side is the death of Facebook. David Marcus, the head of the Facebook cryptocurrency project Libra, emphasized at the World Economic Forum seminar in Davos that the problem of insufficient global banking services is "unacceptable." Libra's general philosophy is Try to figure out a solution to an unacceptable problem. The problem is that 1.7 billion people worldwide do not currently have bank accounts, and 1 billion people do not have enough banking services.

But on closer inspection, Libra is not the best candidate for "building a simple borderless currency and a financial infrastructure to serve billions of people" in the future.

From the setting of the mechanism to the property hedging and power game of the company's currency issuance, to the original sin of the currency that is difficult to escape, Libra faces eight paradoxes, which are shackled, and it is no wonder that they are difficult to land.

First of all, specific to the Libra currency itself, there are already many contradictions in its mechanism setting.

First, it serves customers without bank accounts and has no network smart consumption capabilities.

One year when Jin Huidi came to power when famine occurred, and the people did not have food to eat, the "kind" Jin Huidi was very puzzled. "The people have no corn to fill their hunger, so why not eat meat?"

History is always surprisingly similar. To realize Libra's mission to help people without bank accounts enjoy more fair financial services, there is a hard premise: users have smartphones, have data connections, and can use Facebook software at any time.

But does a person without a bank account have smart spending power? More than half of the adults who currently do not have bank accounts are concentrated in seven countries (Bangladesh, China, India, Indonesia, Mexico, Nigeria, and Pakistan).

Take India as an example. Facebook has only ten million users in India, while Indians without bank accounts have as many as 190 million, and they are mostly distributed in extremely poor and backward rural areas; not to mention that some countries do not use Facebook.

Obviously, this is a question of "why not eat meat?"

Second, the internality of power structure design and the externality of supervision power.

Although Libra uses a decentralized governance structure, it is still the same old way of repeating Facebook's "regulation of its own standards."

By default, Libra consists of 100 members of an independent, non-profit Libra association to manage, including the development of rules for an ecological management framework.

In other words, in the future, the specific distribution rewards of Libra will be determined by the Libra Association, which is equivalent to a benefit distribution group. In addition, as far as the 29 members of the Libra Association currently announced, most of them are commercial companies. It is possible that the rules above, such as TEDA Coin, which once occupied the highest share in the stablecoin market, have been repeatedly manipulated by the issuer.

It is important to know that the power of supervision is essentially a special power that is different from and external to the power being monitored.

Today, the Libra Association is equivalent to being both a "referee" and a "player". How can it form effective supervision and restriction of rights?

Secondly, from the perspective of the company's currency issuance, on the one hand, Libra is a company endorsed by the company, undertakes currency functions, and presents the shape of the Internet. The attributes behind it are hedged.

Third, the privacy protection of public networks and the "penetration" of personal finance.

From Apple iCloud Yanzhaomen, to the massive user information leakage incident on Facebook, to smart products "Dolphin Attack", protecting Internet user information and data security has been topped.

But the problem is that in this era of big data, financial supervision is the supervision of data. Finance is based on the principle of "penetrating" supervision, and it must inevitably emphasize the functional supervision of the entire industry and full coverage of digital currencies.

Personal privacy protection is not compatible with Libra's favorable financial supervision.

In addition, "Facebook is as deep as the sea, and privacy is a passer-by". Facebook is burdened with the stigma of using privacy to make money, and therefore has to pay a huge fine of $ 5 billion. How to balance, choose between privacy and supervision is even more problematic.

Fourth, the unlimited nature of public networks and the limited nature of private companies.

The network world has no time and space boundaries in physical concepts and can be expanded at any time. In the era when the Internet has not yet exploded, the amount of data on Intel's Internet can circle the sun by tens of gigabits. Today, the Internet will add a new one every day. 100 million pages.

But in terms of life, scope, etc., companies are relatively limited.

According to incomplete statistics, multinational companies that rank among the world's top 500 or equivalent have an average life span of 40 years, while SMEs have shorter life spans.

How can you bet on the currency of an unlimited network world in a limited company?

In the Libra project, if members of the Libra Association led by Facebook stop, the Libra put on the market will instantly become a series of meaningless and worthless data.

On the other hand, Libra shows the problem of power games and transfer.

Fifth, corporate currency and sovereign currency.

"Any parallel currency will weaken the sovereign institutions that control currency to some extent."

In a certain sense, the corporate currency is equivalent to a barbarian knocking on the door, not only marginalizing the sovereign currency, but also impacting the national currency sovereignty and affecting the implementation of monetary and fiscal policies.

For example, using Libra to buy things, the credit line is provided by the Libra Association, and these are "loans" issued without the approval of central banks of various countries;

If merchants use Libra to pay their employees after receiving Libra, and then employees use Libra to spend, basically a closed circulation loop is formed, bypassing the central bank, and Libra is equivalent to issuing money in disguise.

Obviously, there is a natural contradiction between the private company's currency issuance and the state machine: the right to issue currency.

Sixth, digital currency: go to the center and re-center.

The currency system naturally belongs to a monopoly, and the coinage tax originates from a system monopoly. Ten years ago, IT elites and mathematics gurus established their own portals to design a digital currency system that was originally intended to be decentralized, dismembering the traditional trust monopoly, centralized power, and national machinery. pattern.

However, it has objectively empowered enterprise centralization and formed a re-centralization trend.

You know, in the Internet era, from clothing, food, living, to eating, drinking, and fun, technology companies represented by FAAMG and BAT are all-take-all, and now they have extended their tentacles to the field of financial investment.

Facebook has 1.59 billion daily active users and 2.41 billion monthly active users; if its Instagram, WhatsApp, and FB Messenger are added, the total number of monthly users of this "app family" is more than 2.7 billion. If Facebook is a country, it will It is the country with the largest population in the world.

Once Libra becomes a standardized unit of account, it will be the most used currency in the world, and Facebook will be stronger than any central bank.

Moreover, Libra uses the alliance chain, and the distribution decision is not completely decentralized. Facebook is likely to form a financial monopoly on the basis of scale advantages.

In the end, the original sin of intractable currency has laid a "landmine" for Libra.

Seven, the limited nature of a basket of sovereign currencies and the iteration and derivation of digital currency use.

"Stability" is actually an ancient concept of currency. In history, countless currencies were naturally abandoned by the market because the value of the currency could not remain stable. Obviously, the use and iteration of digital currencies naturally assumed stability as the prerequisite.

Libra's attempt to stabilize purchasing power and currency value is based on the stability of the basket of assets it pegs, that is, based on the existing currency confidence in the anchored reality.

This determines that it cannot be more stable than the currency in this basket. In particular, the current currency in the basket is limited, and the proportion of the US dollar to US dollar assets is relatively high, while other currency assets including the renminbi are not included, which further expands the risk of Libra fluctuations.

Similar to the repurchase operation, Libra is equivalent to the Libra Association's current liabilities to the user department. It must ensure that users can pay Libra tokens anytime, anywhere. Libra's stability is likely to collapse due to a shock to the dollar asset price.

Furthermore, Libra is unstable due to the reserve framework, which affects the actual iterative use of currency. It will also open the window of price arbitrage, leading to various causes in the information economy and the real economy. It is also necessary to reconcile the actual payment, which is becoming more complicated and derivative.

Eighth, the nature of financial currency and the original intention of Libra.

If the original intention of digital currency is to break away from the fear of inflation brought about by the oversupply of currency under the central bank's monopoly, and bridge the inferiority of the sovereign currency system, it exists in the form of "self-finance". The nature of financial currencies is difficult to escape.

Countless cryptocurrencies have gradually become "air coins", "mLM coins", and even played a financial derivative trend. According to incomplete statistics from Babbitt, nearly 40 contract transactions have been opened in existing cryptocurrency trading platforms. Year-to-date, the number of trading platforms with newly launched contract business has reached more than 20, exceeding the total of the past five years.

In fact, from the earliest shells to gold and silver, and then from banknotes to digital currencies, the form of currency can be subverted, but it is easy to change and the nature of finance is difficult to change.

As long as Libra is widely spread, members with sufficient positions such as association members will have the opportunity to become Libra's net savers, while those with insufficient positions will be net lenders, forming a Libra lending market, and then multiplying in the rhythm of history. An unprecedented scale financial market with Libra as the underlying asset will also generate various games such as futures, forward contracts, options, and interest rate swaps.

The significance of Libra's strategic guidance is far greater than its actual value

In summary, Libra's "super global currency" vision is more like Zuckerberg's own ideal country. This industry feast will inevitably become the habit of the currency circle.

However, as a combination of digital currency and tangible assets, Libra breaks through the virtual online world and the real world, triggering several rounds of topics and discussions, and igniting the digital currency boom. Its strategic guidance significance is far greater than its actual value. .

From the perspective of currency development and evolution, with the continuous expansion of the information economy, a currency settlement unit that can span and link between physical and virtual is bound to be born. Libra may not be the best choice, but it represents a direction. It will also kick off the attempt to digitize currency.