On June 18th, Facebook's Swiss subsidiary Libra Network (Libra Network) will release its white paper on encrypted digital currency projects. Previously, the BBC reported that this digital currency is called GlobalCoin, and the translation is "global currency." However, it was later reported that GlobalCoin is only an internal nickname for its employees. The official name of the digital currency is Libra (Libra). Although the name is not as sharp as GlobalCoin, Libra itself symbolizes balance and fairness, and Libra sounds like LIBOR (London Interbank Offered Rate), so it can be said that the name still highlights the initiator's ambition, and A little bit of rebellious spirit.
The general practice of digital currency projects is to issue white papers first, followed by the issuance of digital currencies for six months to a year. The release of the white paper meant that the Libra project was counting down. From the information that has been revealed so far, the Facebook digital currency is based on the blockchain and will be officially released in the first quarter of 2020. According to the blockchain media THE BLOCK report , the program will establish a digital economy consisting of 100 cooperative alliance nodes. At present, companies such as Visa, Mastercard, Uber, and Paypal have signed up to become the founding nodes. Over time, the economy will include Facebook and WhatsApp totaling 2.7 billion global users.
- EU Commission confirms preliminary antitrust investigation of Facebook's Libra
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- Analysis of the Internal Relationship between Facebook Libra Project and Sino-US Trade Friction and Coping Strategies
- Fed Chairman Powell: Facebook's currency has no effect on monetary policy
- Facebook's ambition: From the business circle of the social platform to the next world currency?
- US Treasury: Endorses the need to monitor Libra and question regulators' ability to regulate Libra
Figure 1. The Facebook digital currency partner reported by The Block (picture from The Block)
The launch of Facebook's digital currency is not isolated, and a series of events have taken place before this, including:
- In July 2018, ICE, the actual owner of the New York Stock Exchange, partnered with Microsoft, the Boston Consulting Group and Starbucks to form the Bakkt, an encrypted digital asset service.
- In February 2019, JPMorgan Chase released the digital currency Morgan Coin for inter-agency clearing
- In March 2019, IBM announced cross-border payment blockchain World Wire
- On June 12, 2019, Visa announced B2B Connect, a cross-border payment blockchain network
The above series of events shows that the mainstream US economy is gradually embracing the blockchain and digital currency. But the impact of these things is dwarfed by the upcoming Facebook digital currency. The Facebook digital currency will be the most significant event in the field of encrypted digital currency after the launch of the Bitcoin main network in 2009, marking the upgrade of non-state-issued digital currency applications from 1.0 to 2.0. Blockchain, digital currency and the pass-through economy will thus enter the main battlefield of Internet and financial technology in one step, becoming the protagonist of the next stage of the digital economy.
Due to well-known reasons, it is very worrying that China's related industries cannot respond in the face of such a major event. It must be recognized that if China is not actively involved in this new phase of the digital economic revolution, it will not only be completely passive in the new competition, but also the advantages already gained in the Internet and financial technology fields may be lost.
After media reports, people have a certain understanding of the issue of Facebook's digital currency, but the significance may not be clear. Therefore, we will introduce and analyze this incident in this article, mainly focusing on the following four issues:
First, what is the motivation for Facebook to launch an encrypted digital program?
Second, what is the strategic goal and significance of Facebook's digital currency?
Third, what are the consequences of Facebook digital currency?
Fourth, what should we do?
This article will proceed from the facts that have been reported so far, as well as the development law of the encrypted digital currency itself, and analyze the above problems along a reasonable logical path. We hope that these ideas will stimulate more research and discussion on Facebook's digital currency and encrypted digital economy. Limited by our own knowledge, our views are inevitably biased and delayed, and we are willing to accept criticism and criticism from all walks of life.
1. The direct motivation for Facebook to launch digital currency
The motivation for Facebook to launch the digital currency program is relatively simple. It is a direct response from the Facebook decision-making layer to the 2018 privacy leak scandal.
The scandal broke out in March 2018. At that time, internal lines were revealed to the US media. Facebook violated the user agreement and provided privacy data of more than 50 million users to a big data analysis company, which may affect public opinion and political voting. Due to the unique political climate in the United States under Trump, this incident has been repeatedly magnified, and the facts about Facebook's various violations of user privacy data have been exposed one by one. The arrogant Zuckerberg and his main assistant, Sandberg, were taken to the US Congress hearings in turn, and a large number of retired employees turned their backs, and the media fell into disarray. Even his former entrepreneurs also publicly suggested splitting. Facebook. In this case, Facebook's prospects have been cast a shadow for the first time since its creation in 2004.
The recent trip to Europe deepened Zuckerberg’s worries about Facebook’s future. In May 2018, the General Data Protection Act, the GDPR, entered into force in the EU. At the same time, Zuckerberg attended two hearings in the European Parliament and was questioned. The first was relatively mild, while the second was murderous. Subsequently, Zuckerberg was almost arrested for refusing to go to the UK for questioning, making him clearly aware that in the United States, especially in Europe, Facebook's current business model will face a fundamental threat.
Simply put, Facebook's business model is to capture user data through unpaid or low-cost, accurately characterize user characteristics and preferences through high-level big data analysis, accurately push advertisements, and earn advertising fees.
This business model was pioneered by Facebook and it is also the ultimate. Facebook has invested a lot of resources to bring together the world's best technology elites, pushing real-time big data analytics and computing ads to the level that no one can match, greatly promoting the development of artificial intelligence technology. However, this model has a fatal problem and it requires the right to analyze user data. When the new rules for user data protection in Europe and the United States begin to be gradually established, the ownership and control of user data are clearly assigned to users. Facebook must analyze the data after the user explicitly authorizes and pays the consideration. In fact, this means The cost and risk of its original business model will increase dramatically and may even become unprofitable in the future.
Facebook needs to find new business models.
The most effective way to inspire major change and innovation is to push a person who has great resources and vision and courage to the brink. According to reports, no later than June 2018, Zuckerberg and his core staff have roughly identified the use of encrypted digital currency as a new strategic breakthrough, and the team of 150 people has begun to advance substantially.
The specific decision-making process has not yet been known to the outside world, but Zuckerberg made this decision, on the one hand, the situation, and on the other hand, it also highlights its personality and courage. In all fairness, digital currency is not the natural choice for Facebook, and it is not the safest and most reasonable choice. In 2018, Facebook's net profit reached $25 billion, with more than 2.6 billion users and a market capitalization of more than $500 billion. He stood in the industry's commanding heights with the world's largest user base and endless cash. If it's safe, Facebook can go with other giants in e-commerce, cloud computing and even search. Even if you want to do financial technology, there are a lot of traditional mature models to choose from. It can be said that Zuckerberg finally chose blockchain encryption digital currency as the main direction, which is extraordinary. It has surpassed the simple meaning of “finding the road” and must have higher strategic goals.
2. Strategic goals of Facebook digital currency
We do not expect Facebook to publicly announce the full strategy of its digital currency program. However, if we fully understand the nature of the encrypted digital currency that anchors the legal currency, along a reasonable logical deduction, we can conclude that after the release of digital currency by Facebook, it is possible to achieve a three-level strategic goal in the future, namely:
The first layer, get a new profit model.
The second layer became the central bank of the global digital economy.
The third layer, the establishment of the Facebook digital economy empire.
2.1 Obtain a new profit model
Libra is able to get Facebook into a huge payment business without invading the privacy of its users, and cut into the financial technology field from the highest point to earn huge amounts of revenue and profits.
Internet payment is the foundation of financial technology, with huge scale and rich profits. China's Internet third-party payment generated about $28 trillion in transactions in 2018, with fewer than 600 million users. If Facebook can effectively convert users to Libra, after several years of development, it is not a fantasy to carry a transaction volume of 50 to 80 trillion US dollars a year. This means that Libra only needs to charge a two-thousandth of the fee, and the fee income is higher than the current Facebook revenue, and all this does not require excessive user data, in the case of end-to-end encryption. carry out.
Cross-border payment is also a big cake. The total size of the global cross-border payment business is currently $125 trillion and is lucrative. People who travel frequently abroad know that in foreign retail window cash exchange, the handling fee is often 3 to 7 percentage points. If the foreign exchange that has not been spent is exchanged back to the national currency when leaving, there may be a spread of up to tens of percent between the purchase price of the cash and the selling price. Through Libra's unified digital currency system, Facebook can reduce the transaction cost of users in this area by an order of magnitude, killing the traditional exchange business and leaving it with a high profit.
In addition, another capability of Libra is to combine with Facebook's inherent business to inject new life into the Internet advertising business while avoiding excessive collection of user data. Specifically, Facebook can build a certificate-based incentive system based on Libra in its social networking, gaming, and other businesses. Instead of over-analysing user data, it can use Libra rewards to work with a pass-through secondary market to encourage users to click on ads and guide users to deep interactions without knowing the user's specific preferences. Further, this pass-through incentive system can also transform every user into its advertising sales or distribution channel. For example, a user gets a coupon by interacting with an ad, but he doesn't need it. In the traditional Internet advertising model, things are over. However, under the pass-through incentive mode, users can transfer and sell this discount card through their own channels or secondary market, and receive corresponding commission rewards. As a result, these users are in fact the distribution channels of Facebook's advertising business, and Facebook relies solely on the market mechanism to bring advertising to a new level without invading user privacy.
Of course, we can also fully imagine that Facebook cooperates with traditional financial institutions such as banks, funds, securities companies, exchanges, insurance companies, etc., to create various financial products in its own system, to become the financial services of users, the world's largest financial institution. Intermediary, earning high agency fees.
Therefore, Libra has the ability to create a new profit model for Facebook, not only to get rid of the threat of subversion of the existing profit model, but also to make Facebook take a big new step in the Internet field.
However, the above-mentioned profit models, although they may create tens of billions or even hundreds of billions of dollars in profits, are still only a starting point for the ability of digital currency, better than traditional user points, but if you just stop here, Facebook is nothing more than a more profitable Internet company. We believe that this is by no means the highest goal of Facebook's Libra release.
2.2 Digital Economy Central Bank
It is said that Libra will anchor a basket of currencies consisting of multinational currencies, which sounds similar to the International Monetary Fund's Special Drawing Rights (SDR) and is similar to the renminbi after 2005. This means that Libra is a so-called "stabilized currency" in the field of encrypted digital currency and the economy of the economy, to control price fluctuations within a certain range, and not to provide incentives through the appreciation of the certificate. Instead, Libra will pay dividends to the holder, bringing the entire system closer to a bank.
We believe that Facebook is hoping to upgrade to a superbank that has both coin and credit rights in the digital economy world through the Libra project.
The key here is the right to issue currency, or simply the coinage. According to Professor Benjamin Cohen, the essence of coinage is to avoid the burden of adjusting costs by delaying and passing on others . To put it in a more common way, it is the power to delay and pass on debts after debts. For example, an entity that owns the coinage rights, while acknowledging that its issued currency is its own liability, will also indicate the mortgage assets corresponding to these liabilities on the statement, but has no obligation to pay the currency holders. Although the central bank needs to clearly indicate on the balance sheet how much gold, foreign exchange, treasury bonds and other assets behind the currency are used as collateral and support, when an ordinary person takes money to go to the central bank to convert into gold, foreign exchange or treasury bills, The central bank will not accept it. The central bank may be the only institution with this privilege under the current legal system.
So can Facebook have such privileges through Libra? To answer this question, we need to figure out the implementation mechanism of the encrypted digital stable currency.
The first thing to note is that stabilizing coins is actually a pseudo-concept, and there is no such thing as a stable currency in the world. The so-called stable currency is actually just a convenient exchange name. In the field of encrypted digital currency, it usually refers to the digital currency whose price bites an external target. That is to say, the stability of the stable currency is not the stability of its purchasing power, but the stability of its relative currency price with respect to the anchoring target.
At present, there are roughly three ideas for realizing stable coins.
The first is the legal currency debt mortgage. In layman's terms, a certain amount of legal currency is mortgaged to the depository, and then the same number of digital currencies are issued on the chain. Every digital currency has an equivalent currency collateral behind it. Once the digital currency holder asks to exchange the legal currency, the issuer must immediately cash it in equal amounts. In this sense, the stable currency is only the symbol of the legal currency debt issued on the blockchain. In the case of 100% cash preparation, the model itself has neither expanded nor contracted the circulation of legal currency. It only moved part of the legal currency to the blockchain, and the issuer does not really have the coinage right.
The second is the mortgage of digital assets. This is a unique pattern on the blockchain that collateralizes the decentralized digital assets (bitcoin, Ethereum, etc.) on the blockchain into a smart contract to issue a digital currency that is stable relative to the legal currency. The representative of this model is the MakerDAO project. This way can be considered to have "partial coinage." On the one hand, smart contracts can choose the type of coin-casting assets themselves. This is the unique power of the central bank. On the other hand, the digital currency sent out in this way is redeemable. Users can redeem these digital currencies as collateral assets at their disposal through smart contracts, which is different from the central bank's currency.
The third is the algorithm central bank, which simulates the central bank's algorithm of adjusting the money supply according to CPI or a basket of currency prices, and flexibly expands and contracts the digital money supply by sensing the supply and demand relationship of the market, trying to achieve price stability. This is a way of fully owning the coinage, completely simulating central bank operations. However, because there is no injection of government authority, this model is only a simple example, and there are no successful examples.
What is the way Libra will be implemented?
We believe that in the short term, Libra will be issued as a legal currency debt collateral. In the long run, Libra will adopt a hybrid model to achieve the factual mastery of the coinage.
According to information disclosed in relevant media reports, Libra will not anchor a legal currency, but anchor a basket of currencies. That is to say, in the early stages of its development, Libra will reserve a certain amount of cash in the proportion determined by the currency basket, and issue digital currency as a mortgage. This is the easiest way, the most cautious, the most acceptable for regulation, and Facebook's ability is enough to do it.
In order to achieve this, Libra has to find a currency basket and can cash in a variety of legal currencies. In order to achieve this, Facebook must find business partners around the world, allowing users to freely convert Libra into corresponding legal currency. To this end, Facebook will share the coinage rights with these partners.
What really matters is that Libra has been running stably for several years. At that time, the digital economy of e-commerce, games, services, and finance will be established in the Facebook network. A large number of products and services will be directly quoted by Libra and accepted by Libra. Global Facebook users will gradually establish direct trust in Libra's local currency. In other words, people trust Libra's value no longer because it can be easily converted into French currency, no longer because of the support of any third-party assets, but only Libra, just because of the entire Facebook social network and countless More than two billion people in the secondary market are willing to actively accept Libra for their assets, cash, products and services.
At this point, it means that a large part, or even the vast majority, of the Libra in circulation will only be circulated within the Facebook digital economy and will not be honored. Facebook will still provide a promise of fulfillment, but in fact does not need to bear the obligation to redeem, which gives it a certain right to add Libra by purchasing or trading various assets. And this is the de facto coinage.
This partly explains why Libra does not anchor the dollar directly, but rather anchors a currency basket. If Libra anchors the dollar, then when Libra masters the coinage, Facebook will in fact become another dollar central bank outside the Fed. This matter is too big a political or conceptual impact and must be circumvented. Anchoring a currency basket actually creates an independent currency, that is, Facebook is going to be the central bank, but the central bank of an independent digital economy, not the second dollar central bank.
2.3 Digital Economy Empire
Maybe people have to ask, even if Facebook becomes a digital economic central bank, what will happen? We believe that Facebook will build its own financial syndicated system through 100 allies and build a strong digital economy empire based on it.
It is not yet known what kind of governance relationship will be established between Facebook and its 100 allies, how to share the coinage rights with its allies, and whether they are given the right to credit expansion. In any case, what is certain is that these nodes, with sufficient incentives, will become representatives of the Facebook digital economy in various regions and industries. They will drive 2.7 billion users to operate, start, invest, trade, provide services to each other, and engage in a variety of financial activities in this economy. This will in fact create a complete digital economy empire on the Internet. Over time, the GDP of this digital economy empire may exceed most countries in the world and gradually establish its own set of governance systems.
As the government and central bank in this world, Facebook will completely evolve into a new species. Everything else in the world today, no matter how big or small, is already at a completely different level from such a Facebook.
In the medium and long term, Facebook digital currency will cause a series of complex and far-reaching consequences. A comprehensive analysis of these consequences is far beyond the scope of this article, and we will focus on four of them here.
3.1 Encrypting digital currency becomes an irreversible trend
After the launch of the Bitcoin network on January 3, 2009, encrypted digital currency was born as a new thing in the history of human economy. After ten years of development, the encrypted digital currency has already had a certain scale and achieved considerable development. But at the same time, due to its impact on traditional monetary theory and system, and because of the immaturity of this new thing, the encrypted digital currency has also suffered enormous controversy and pressure, and there are various forces that hope to kill it in infancy. , erase it from history and reality. It should be said that this possibility of reversing historical trends exists before the release of Facebook digital currency. After that, after more than 100 institutions and 2.7 billion global users were involved in this historical process, this possibility has disappeared completely, and no one or organization can stop the development of encrypted digital currency.
Of course, for the internals of the encrypted digital currency industry, the addition of the Internet giant is itself a turning point. Prior to this, this movement was basically dominated by a small group of idealists who proposed a series of slogans such as financial democratization, open finance, evidence-based economy, borderless finance, and decentralized economy. The global public brings a different choice. When a giant like Facebook joins, the campaign will be upgraded from idealistic 1.0 to commercial 2.0. Idealism will always be part of this movement, but the power of capital and commerce will gradually play a leading role. Although helpless, this is a historical necessity.
The good news is that this process will once again inspire a lot of innovation and wealth creation, and spawn a new digital economy giant, bringing another passionate entrepreneurial era.
3.2 Currency competition atomization
One of the original goals of Bitcoin was to ensure that everyone had complete control over their digital assets. To this end, Nakamoto has made the Bitcoin network a peer-to-peer, freely accessible anonymous payment network, making pervasive and non-rejective properties a natural feature of blockchain payment networks. As a result, the digital currency on the blockchain can directly penetrate every scene in daily life, resulting in atomic competition between different currencies.
There are many definitions of blockchains, but from the perspective of exploring Facebook's digital currency, it should be seen as a super-sovereign, open payment and financial network on the Internet .
In layman's terms, the payment network is a “money-going” network, and the financial network will take notes, securities and other financial data in addition to money. Today's mainstream payment and financial networks are centralized. The Internet that we are familiar with is two separate networks, which are generally constructed by the central bank and the financial institutions of the banks. China's second-generation CNAPS (China Modern Payment System) and CNFN (China National Financial Network) are the world's most advanced state-level payment systems and financial core networks built on centralized infrastructure. We need to move even a penny between bank accounts through bank counter services, ATM, online banking and Internet third-party payment, all through the network system.
The traditional sovereign currency can obtain a monopoly position in a sovereign state, except for legal and ideological norms, because the state can ensure that only the payment network of the sovereign currency can exist legally in its territory, while other sovereign currencies Payment network is different. For example, the reason why the renminbi cannot be circulated in Japan is not because the Japanese police supervise various businesses all day, using batons to force them to refuse renminbi payments, but because the Japanese government can easily prohibit renminbi payments and financial networks from being laid out in Japan. , that is, to conduct rejection management.
Why can the government easily manage the rejection? It is because the centralized financial network structure is very complicated, and the scale and construction cost are also very large. If you want to lay it in other countries, the cost is high and the situation is large and must be approved by the government.
But the blockchain has turned it all over. What is the nature of the blockchain? It is to put the core network of payment and finance directly on the Internet, without the need for licenses, paving lines, and building a lot of infrastructure. Anyone who wants to use only one mobile phone can freely connect to the payment network at a very low cost close to zero and use digital currency to complete the payment transaction.
In fact, in the past decade, Bitcoin has fully demonstrated the characteristics and power of super-sovereign payment networks. The blockchain 2.0 technology represented by Ethereum shows that the blockchain has sufficient potential to develop into a super-sovereign financial infrastructure, not just a payment network. Any user, without the approval and authorization of anyone, or with a license, can create, store, pay and trade digital assets in the blockchain, and participate in various complex financial and trade activities such as investment and financing. Unless the government completely severes the Internet or checks everybody's Internet terminal equipment without interruption, there is no way to ban this behavior.
For today's sovereign countries, if the government can effectively manage its domestic payment financial network, within the country, the official method currency can dominate the world. Trading and competition between different sovereign currencies can only take place on the border, that is, in the foreign exchange market. However, when the blockchain, a super-sovereign global payment finance network, directly penetrates the nerve endings of the economy, the traditional currency border ceases to exist, and multiple currencies will coexist under the same scene.
The Facebook digital currency blockchain will have 2.7 billion mobile terminals, and each of its mobile apps will become a “light node” or “wallet” for Libra's payment network, and any user can connect to the payment network at any time. . Libra is expected to be the world's first and largest cross-border, super-sovereign digital currency payment network. In this case, the government's ability to limit and manage the payment network will be greatly weakened, and it is almost impossible to achieve such a rejection of the payment network. In other words, this payment network can penetrate into any sovereign currency zone at any time, coexist and compete with it.
After Facebook, there will also be some new transnational, super-sovereign digital currencies. In the future, every user needs to choose one of several currencies in daily payment. The currency competition is directly carried out at the level of atomic trading, which will have a great impact on the existing monopoly of domestic currency.
3.3 Multinational Corporation Alliance Leading Currency Denationalization Process
The digital currency dominated by Facebook and its business allies is a typical non-state currency. The emergence of this situation fully confirms Hayek's vision and judgment of monetary development in the 1970s .
Libra is a non-nationalized digital currency operated by a super Internet giant and supported by 100 partners. It is expected that the coinage, governance and proceeds of this digital currency will be distributed among the 100 “nodes” according to a set of rules. Therefore, compared to Bitcoin and Ethereum, it is centralized, but it is decentralized relative to the existing sovereign currency. It may still represent the interests of a small group in the final analysis, but there is more democratization and sharing spirit in the specific governance model, which is somewhat transcendental compared to the existing sovereign currency. This must be acknowledged.
Since the emergence of the currency, it has always had both economic and political functions. On the one hand, it is the exchange medium, value storage and accounting unit, on the other hand, it is a symbol of the state's political power. As Mundell said, "a powerful country with a strong currency." A country can force its citizens to use and only use the officially issued currency, reflecting the ability of the regime to rule within. Correspondingly, a sovereign currency can be widely used outside the country, and it will also be regarded as a sign that the country's powerful forces are overflowing and Ze is the best in the world. Therefore, competition between currencies has been given a strong political significance.
However, with the advancement of globalization, the scale of international trade has expanded rapidly. In order to reduce transaction costs, people need a unified world currency. For this reason, they have to choose the sovereign currency of the most powerful countries as the international trade and reserve currency, that is, the world currency. In the past, Athens's silver coins, Byzantine gold coins, Florence's Florin, the Dutch guilder, the Spanish peso and the British pound have all played the role of international currency, and today, this role is undoubtedly the dollar.
However, using a sovereign currency to act as a world currency brings many problems. On the one hand, the issuing country of this world currency does enjoy the privilege of collecting a coinage tax to the whole world, which is itself a huge unfairness. On the other hand, this privilege is also countering the issuer of the world currency. The famous Triffin paradox pointed out that since all countries need to reserve the world currency, the issuer of this world currency has an obligation to provide additional money supply to other countries, which will lead to the country’s long-term trade deficit, and ultimately the economy will It is weakened and thus jeopardizes the status of this world currency. What the United States is facing now is actually the case.
The ideal world currency should be a single supranational currency, which would be the most economically efficient, least politically controversial, and the lowest transaction cost. Mundell once said that the optimal amount of money is just like the optimal number of God – "is odd, preferably less than three." If more than 200 sovereign countries and regions around the world can sit down and agree on a plan to form a unified world currency, then of course it is the best. However, in the current situation of political fragmentation, big country game, and civilized conflict, the above assumption is tantamount to the Arabian Nights.
Facebook Digital Currency has opened up a new way of thinking. Since the country can't do it, multinational companies can do it. Libra, a cross-border, super-sovereign, coalitioned, non-nationalized digital currency, is naturally in line with the interests of multinational corporations. It will effectively reduce the transaction costs between multinational companies and between different regions, and greatly improve the efficiency of collaboration, which is what multinational companies can't ask for. No force can stop the combination of multinational companies and digital currencies.
There is reason to believe that Facebook was only the first crab-tester and the first rebels among the Roman legions. Hundreds of multinational economic organizations will use Facebook's digital currency as a platform to conduct a series of innovative attempts in incentives, governance, and legal compliance. Once it completes the fire test, other multinational companies will flock to it. Technology companies such as Google, Microsoft, Amazon, and IBM, as well as some self-breaking financial institutions on Wall Street, will be involved. The alliance of multinational corporations will dominate the development of non-nationalized digital currencies. The alliance between sovereign states and enterprises formed over the past 100 years will be forced to restructure. The globalization of capitalism will also enter a new stage.
3.4 Opening a new battlefield for the game of the digital economy
Facebook certainly does not live in a lawless world, including the United States, and governments will not happily give up the sovereign monetary system that is difficult to establish. If Libra is going to fight against all sovereign currencies in all countries, there will be no chance. Zuckerberg must consider how to find a foothold for Libra in the gaps of the existing system. We believe that Libra is likely to form an alliance with the US dollar in the process.
As the current world currency, the US dollar has not been able to be challenged for a long period of time. However, its dominance is mainly reflected in international trade, investment and foreign exchange reserves. Since the US dollar payment network can also be easily distinguished by sovereign states, the US dollar is not able to enter the daily payments and inter-firm trade of residents, especially in the digital economy.
However, Libra can do things that the dollar can't do. As mentioned earlier, users in the Facebook digital economy can build their own new digital economic life around Libra, where they create, hire, shop, travel, consume, buy insurance, and more.
More importantly, Libra is a “folk” currency that does not have the strong political color of the dollar. At the same time, Libra's degree of distributed governance structure and "interest sharing" incentives will better balance the interests of all parties than the US dollar, and it is easier to accept.
Conversely, for Libra, it will be positioned in the digital economy for a long time, and will not enter the international physical trade and large investment areas to challenge the dollar. On the contrary, without the support and promotion of the United States, its development is bound to encounter a lot of resistance. Therefore, it also has the incentive to form some form of alliance with the dollar.
Of course, in some specific scenarios, Libra is competitive with the US dollar, but more complementary. The connection between the US dollar and Libra is a high probability event when both parties need each other.
We judge that the US government and the Federal Reserve may not have formed a definition of Libra's super-sovereign digital currency, but their systems and habits will allow projects like Libra to go a long way. The first batch of published Libra nodes are mostly US companies and entities, and they are unlikely to resist the pressure and temptation to form an alliance with the US dollar. Thus, it is almost inevitable that Libra will somehow become the de facto representative of the dollar system in the global digital economy space. Technically, this is not a difficult matter, but in terms of results, the significance is extremely significant, which will enable the United States to achieve a significant first-mover advantage in the digital economy competition.
Once Libra's alliance with the US dollar is formed, in the long run, the government, especially the governments of democratic countries, can hardly deter Libra's penetration of its digital economy. A more reasonable choice can only be to work with Facebook and its allies to find decent solutions in areas such as taxation, regulation, and crime prevention.
In summary, although the digital currency began with the liberal ideal of cryptanaps, the capital and national power will certainly extend to the digital economic space, which is not transferred by the will of any idealist. Libra is an important event in this process.
4. Enlightenment to us
At this point, our analysis of Libra is nearing completion. But we can't help but think about it. What does this matter mean for China? What should we learn from?
Here we talk about our own views.
First, this means that China must participate in this new competition in the digital economy and cannot escape.
We understand that for China, digital currency is an option with huge risks and opportunities. However, the launch of Libra indicates to us that such a battle for a new digital economy continent is about to open. We cannot afford the consequences of absence.
We understand people's concerns. In the financial sector, due to the huge advantages of the US dollar and the US financial industry, and because of the inherent problems of China's financial industry, digital currency may be used to break China's financial firewalls, causing asset outflows, financial risks to accumulate, and even wealth being looted. The risk is Very clear.
Therefore, nowadays, many people in the country want to bury their heads in the sand, and this thing does not exist. Some people think that they can resist the enemy outside the country through administrative and technical means, and they are lagging behind the world trend. Some people have a chance to be lucky, and hope that the foreign government will collectively act to block the digital currency and reverse the historical trend. For example, a few days ago, the Indian Congress moved to severely punish the participation in bitcoin transactions. Many people were encouraged to think that the governments of the world would go to learn India. They did not know whether they had a similar illusion when they were in India for three years ago.
If objective, unbiased and delusional observations on the current development of digital currency, and understanding of the enthusiasm for innovation in digital currency and the CIT economy at home and abroad, anyone will come to a clear conclusion that digital currency is inevitable It will profoundly change the digital economy and the global technology, finance, capital and economic structure. This process may have twists and turns, but it is unstoppable. The risks mentioned above always exist. We participate and have the opportunity to find a way to restrain. If we don't participate, we will only passively beat this result.
Second, enhance the sense of crisis and raise the level of awareness of the new round of digital economic competition.
After more than 20 years of hard work, China's digital economy has exceeded 30 trillion yuan, especially in the fields of mobile payment and e-commerce. This aspect is a real achievement, on the other hand, it has indeed led to the mentality of being complacent and self-satisfied. We should realize that technological innovation in this field is a thousand miles away. If you don't pay attention to it, you can change from leading to backward.
Compared with China's current mobile payment, Libra is a system of multi-center governance, benefit sharing, and extensive incentives. One is a system with single center arbitrariness and winner-take-all; one is global, international, and pervasive. One is to start from the home to talk a little bit, a little bit of shop; one is a flat, point-to-point, ultimate penetration blockchain payment network, one is a stacked bed, a complex centralized centralized payment clearing system; It is a digital economy native currency with a non-nationalized beautiful coat, and one is a sovereign currency that has been transplanted into the digital economy space. In the new round of competition in the global digital economy payment system, who will have the upper hand, is this not clear at a glance? If we don't feel a sense of crisis, we will continue to lie on the so-called "new four major inventions". Within a few years, China's Internet payments will turn from leading industries to backward industries.
Third, enhance confidence, enlarge the pattern, and dare to compete.
China has the conditions to participate in this competition and gain a place. China has a group of powerful Internet companies, a large and young and creative group of engineers, and a large-scale real economy. If digital currency is used as a new tool, it will rapidly develop overseas business, sell Chinese products, and occupy international The market, effective support for the "Digital Belt and Road" strategy, can fully dominate the new global digital economy competition.
But to take advantage of our strengths, we must enlarge the pattern. Our current thinking is to move the renminbi into the digital economy space. But in the face of Libra, a non-state-owned digital economy, the game is destined to suffer. As mentioned earlier, Libra has the shadow of the United States behind it, but it absorbs some ideas of freely encrypted digital currency such as Bitcoin, trying to form a multi-center alliance organization in form, and sharing a set of benefits and power. The mechanism of mutual checks and balances reflects a certain transcendence and pattern. Regardless of the degree of sincerity behind it, its affinity is inconsistent with the traditional centralized currency that represents the power of the state. If China wants to compete with such a digital currency in the international market, it is impossible to push the digital renminbi hard. It must stand at the height of the community of human destiny and come up with a bigger, more selfless, more open, more international, and more Share the spirit of the program. We believe that if we can come up with such a mind to compete, the Chinese have no reason not to occupy a place in the new round of digital economic competition.
Finally, in the face of reality, liberalize academic and technical discussions on encrypted digital currencies.
Since the release of the Morgan Coin in February this year, the situation of mainstream American institutions embracing digital currency has progressed rapidly, far exceeding the judgment of relevant institutions and experts. The entire Chinese financial technology industry seems to be lack of preparation for this, and it seems a bit slow. This is directly related to the suppression of discussions on related topics for some time.
We understand that the topic of digital currency is extremely easy to use for illegal financial activities. Therefore, it is a realistic need for financial stability. But we believe that the liberalization of relevant discussions in the academic and technical fields is not only necessary, but also does not conflict with the big goal of financial stability. The key to the global digital economy competition that has arrived is the financial thinking, the incentive model, the governance mechanism, and the experience of regulatory compliance and international operations. These things are not widely exchanged and fully discussed. Come.
Therefore, we propose to liberalize the academic and technical discussions on encrypted digital currency within a certain controllable range, allow relevant conferences and exchanges to be held, and quickly raise the level of awareness of this topic among Chinese industry professionals.
For us, the launch of the Facebook digital currency project should be a wake-up call, whether it is a real sleep or a sleep, now it should be awake, face the reality, start to think and discuss honestly, this is to win success. premise. (Finish)
This article was personally reviewed by the famous economist Professor Zhu Jiaming and made a lot of valuable comments. I would like to express my heartfelt thanks.
 The Block, Facebook's cryptocurrency partners revealed,
 Benjamin Cohen, “Money Power,” CITIC Publishing Group, 2017.10
 Friedrich von Hayek, “Nationalization of Money”, Hainan Publishing House, 2011.5
Author: Meng Yan, Shao Qing (Digital Asset Research Institute)
Source: Meng Yan's blockchain thinking (WeChat public number)