Babbitt column | Libra currency system is a 100% reserve full reserve banking system

When I read the Libra white paper, I heard Irving Fisher's smile in my mind: Fisher and I and five other brothers, the cancellation of the Chiacago Plan in Chicago since 1933. Part of the reserve system, and the use of the 100% reserve bank reform system, there is no regret in the last century.

However, from the Internet tide in the 1990s, to the financial crisis triggered by subprime mortgages in 2007, the imbalance of international trade, and the big wave of blockchain cryptocurrency, it was finally realized in the Libra system. This will change the pricing mechanism for interest and directly affect the bond market, stock market, commodities, and derivatives markets.

According to the Libra white paper, each Libra coin is supported by actual assets to support it. The actual assets will be a series of low-volatility assets, including government bonds and deposits provided by a stable and reputable central bank. The English white paper says: What are the actual assets that will be backing each Libra coin? The actual assets will be a collection of low-volatility assets, including bank deposits and government securities in currencies from stable and reputable central banks. Libra reserves are secured by a package of letter or short-term government bonds, and can be sold on the exchange to realize the Fiat Currency required by the user.

I have read so many white papers and practiced many cryptocurrency blockchain projects, but Libra, which was promoted by Facebook, was the first cryptocurrency project to introduce government bonds. It was previously designed, such as Yao Yudong and Yang Tao. The eSDR was proposed, but no one has implemented the code. Based on this assumption, with the launch of the Libra system in early 2020, U.S. Treasury bonds can become collateral for the Libra currency issue and circulate in the world, which means that Libra's national debt can be circulated around the world. The support of such short-term national debt will realize the encryption and monetization of the US dollar system. Because of the technical feasibility of monetary policy, this currency is 100% reserve, and some reserves are national debt.

Users in the Libra system do not have direct access to the reserve. Authorized dealers will be involved, and only they will be authorized by the Libra Association to trade a large amount of fiat money and Libra, and let the reserves increase or decrease with these transactions. Libra coins are “manufactured” and “destroyed” according to the needs of authorized dealers (open and transparent code). Users do not have to worry about the association causing inflation or depreciating the currency in the system. To make a new Libra currency, the dealer must transfer the reserve currency to the reserve in a 1:1 ratio, ie 100% reserve currency. By working with authorized resellers, the association will automatically create new coins as demand increases and destroy them as demand shrinks. The process of manufacturing and destroying Libra coins will be the Move Smart Contract Language.

At the same time, combined with the Move language in Libra system, this language is newly created and used exclusively for smart contracts. The purpose of limiting digital assets to "resource types" with the same attributes as real assets becomes a reality: each resource has only one Owner, resources can only be spent once and limit the creation of new resources. This is exactly the six bank economists such as Fisher, who followed the bank reform idea put forward during the Great Depression of the 1930s: the full reserve bank (also known as the 100% reserve bank), the bank was asked to deposit each depositor All funds are stored, and the store can be extracted on demand at any time. The funds deposited by the customer into the demand deposit account will not be lent by the bank because it is legally required to retain all deposits to meet potential payment needs. Proposals for such systems typically do not impose such restrictions on deposits that are not required to be paid, such as time deposits. In general, the depositor is not given interest, but at the same time, the depositor is charged a higher account management fee.

Libra also made it clear that Libra can avoid “bank runs” because the typical reason behind the run is that Libra is only partially supported, so people want to redeem their money before others. The 100% reserve may indeed put an end to the monetary factor in the financial crisis. This is obviously aimed at the credit expansion caused by the “partial reserve system” and a series of consequences: the increase in non-performing loans → banking crisis → market turmoil.

The 100% reserve system is also used in developed economies. The Hong Kong linked exchange rate system is based on the 100% reserve of the US dollar. According to the Basic Law of Article 111 of the Hong Kong Basic Law (Article 111) It is the legal currency of the Hong Kong Special Administrative Region and continues to be circulated. The right to issue Hong Kong dollars belongs to the Hong Kong Special Administrative Region Government. The Hong Kong dollar must be issued with a 100% reserve. The Hong Kong dollar issuance system and the reserve system. From the website of the Hong Kong Monetary Authority, the characteristics and advantages of the linked exchange rate system are as follows: 1. The need for a local economy: a fixed exchange rate is conducive to maintaining long-term economic stability. This is also the way Hong Kong can develop into a business. The main factor of the center. 2 Simple, high transparency, the market can clearly understand its operating mechanism. 3 To enable Hong Kong's economy to adjust to external shocks, but to avoid sudden collapse of currency, causing damage and volatility.

But the world’s bitter dollar (US debt) has been around for a long time. As of 2019, the total debt of the United States has reached a staggering $22.3 trillion, and it is still growing. In the midst of infighting, other central banks in the world are considering The main method of dollar pricing and de-dollarization is mainly to sell US Treasury bonds, sign a wide range of local currency swap agreements (significantly signed in the local currency swap agreement in the Belt and Road process), abandon the anchoring of the US dollar, and settle the oil trading in non-US dollars. Barter trade, increase or establish non-US dollar currency reserves, hedge the US dollar with enhanced physical gold layout. Many of the aforementioned behaviors were originally looked at the US dollar in the form of Fiat Currency, considering the currency multiplier high-energy currency, etc., after all, the original US dollar issuance is not 100% reserve. Libra, which now relies on a basket of legal and national debt, is 100% reserve, and where the Internet flows freely.

Libra also carries the power of justice to enable 100 million poor people to receive inclusive financial services.

So how do we deal with us, them, you? How to participate?

Refer to

[1] A Program for Monetary Reform was attributed on its cover page to six American economists: Paul H. Douglas, Irving Fisher, Frank D. Graham, Earl J. Hamilton, Wilford I. King, and Charles R. Whittlesey.

[2] https://www.hkma.gov.hk/gb_chi/classroom/page/work/work_02_02.htm Author: Wang Liren