Internet giant Facebook (Facebook) released a white paper called Libra's encrypted digital currency on June 18, causing public opinion. Some people think that Libra may become a super-sovereign currency. Some people speculate it as a bitcoin arbitrage and nugget opportunity. Others worry that it will have a huge impact on the inherent financial system.
In the face of public opinion, we need some cold thinking to prevent speculation and speculation. Encrypted digital currency is not the first time to appear. It should be viewed in a normal way. Seeing the essence through the form of penetration, both its benefits and its observations. As Fed Chairman Powell commented: “Libra has potential advantages and potential risks, especially as a currency that can be used for a large number of applications.”
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After carefully studying the white paper, we can see that unlike the "chain coin" such as Bitcoin, Libra is based on the blockchain technology, which is backed by a real asset reserve and is anchored with a basket of currencies consisting of many countries. Its vision is to create a simple, borderless currency and financial infrastructure for billions of people, working to create a new decentralized blockchain, a low-volatility cryptocurrency and a smart contract platform. In order to open up new opportunities for responsible financial services.
If Libra can truly achieve its vision, it will hopefully improve the efficiency of inter-company financial communication and support a series of financial innovations in trade, investment and entrepreneurship. However, things have two sides. Some people in the industry have analyzed that for those economies with large exchange rate fluctuations and high inflation rates, the emergence and large-scale use of Libra may weaken the ability of macroeconomic regulation and control of monetary policy. Some experts also said that if Facebook cannot strictly implement full mortgage issuance and independent custody of mortgage assets, it will likely have the ability to “monetary multiplier expansion supply”, which will bring severe challenges to the traditional financial system. In addition, some lawless elements may use virtual assets such as digital currency for criminal activities such as money laundering and terrorist financing. This is a huge risk in the existence of encrypted digital currency.
The above risks and challenges indicate that Libra should be viewed with a normal heart and avoid jealousy. It is not a rational attitude to regard the birth of Libra as a "chain coin" such as Bitcoin, which is a danger of speculation and bubbles. Regulators should treat encrypted digital currencies with prudence, keep up with the trend of new technologies, and improve relevant regulations.
"Prudence" does not mean that closure and a stick are killed. Instead, research is first carried out, and full investigation is used to support scientific supervision, thereby avoiding the potential risks of encrypting digital currency and exerting its "innovation benefit". The statement of Bank of England Governor Mark Carney can better outline the attitude of prudential supervision – Libra will be reviewed in an “open mind rather than an open door”.
In fact, the regulation of encrypted digital currency is becoming more and more strict. The final version of the anti-money laundering and terrorist financing supervision guidelines issued by the International Intergovernmental Cooperation Agency’s Anti-Money Laundering Financial Action Task Force (FATF) explicitly requires cryptocurrency exchanges. The Virtual Asset Service Provider (VASP) must share the customer information of the transferred funds with the government.
Regulatory attitudes are key to new things like encrypting digital currencies. Financial supervision departments should pay more attention to research. Only through thorough research and discussion can we understand whether a certain digital currency is a good tool to improve the efficiency of financial services, or a concept of a void in the manufacture of bubbles. If a digital currency is only a concept of speculation and an arbitrage tool, supervisory management should strictly control it; if a digital currency is indeed guaranteed and supported by real assets, it can make trade, business, and investment more convenient, then It is necessary to establish an inclusive and prudent regulatory framework, carry forward its benefits, and ensure that its risks are controllable, especially to avoid its impact on economic stability. This allows us to not miss new opportunities brought about by new things, and even take the lead in new trends.
In short, the regulatory attitude towards digital currency should be based on whether it is conducive to the development of the real economy. In addition, even if an encrypted digital currency is conducive to real economic and financial innovation, its role depends on the interconnected network infrastructure. Therefore, to treat encrypted digital currency, more emphasis should be placed on basic research and network infrastructure construction to prepare for the possible digital economic tide.
Source: Financial Times