Libra's Achilles' heel: Cross-border supervision

Author: Prof. Practice Shanghai Advanced Institute of Finance, former senior Fed economist Hu Jie block chain & Zhongguancun Industry Alliance chairman, BitTribe Lab (Hong Kong) chief preacher yuan Road

June 29, 2019


This article is from the dialogue between Yuandao and Hu Jie. Both are fans of blockchain technology. The Libra white paper, led by Facebook, was launched, which inspired the enthusiasm of the two to discuss related topics.

Yuandao is China's first generation of Internet infrastructure experts, witnessing the revolutionary impact of the Internet on the whole society. He believes that the significance of the blockchain far exceeds the Internet, which will not only improve the efficiency of the traditional financial industry, reduce its operating costs, improve its service experience, but also with the in-depth application of the blockchain, a new financial format, business ecology, Even the form of civilization will come into being.

Hu Jie is from the traditional financial industry. He has worked as a senior economist in the research and practice of financial markets and monetary policy in the Federal Reserve Bank. He joked that he is an authentic “currency” expert in the traditional financial system. . He also believes that the blockchain will greatly improve the operational efficiency of the traditional financial industry and even change some of the operating modes of the financial industry. However, he is open or cautious about whether the blockchain can shake some of the core cornerstones of the financial industry, such as the national monetary sovereignty, the real name system of financial users, and the government's privilege to obtain tax-related information.

For the Libra project, both of them are actively supporting, but they also have a certain reservation.

They believe that the Libra project on the road of advancement has a huge obstacle: how a global currency can be landed in many countries with economic sovereignty and independence. Any government that regulates any currency within its jurisdiction will be involved because it involves fundamental issues such as financial consumer protection, financial system risk, monetary policy, government revenue, and even national security. It is far from easy for Libra to cross this obstacle.

But for the way out, the views of the two are not the same.

Yuandao believes that Libra is designed based on traditional financial theory and cannot completely get rid of the constraints of the old rules in the traditional financial world. Even if the universal currency proposed by the white paper is overcome by thousands of obstacles, it is still a universal currency within the traditional financial framework. It is very meaningful, but the imagination cannot break through the inherent ceiling. Based on the original heart of Nakamoto's papers and the technology, economic logic and political philosophy behind Bitcoin, it is conceivable to start a new currency and the corresponding financial world in addition to Libra. In this new world, perhaps the identity of users has changed from being based on biological attributes to being based on social attributes, encrypting digital currency distribution from government-led to government guidance, and then leveraging the power of folk wisdom and the Internet world (comparison: Libra anchored Is a basket of government-led legal coins), the financial industry governance and regulation has shifted from a top-down centralization model to a bottom-up community-based model (similar to the well-known Internet Task Force IETF: Internet Engineering Task Force). and many more. He hopes that Facebook's Xiaoza (or others) will go up to the next level. In addition to the Libra project, a new generation of encrypted digital currency based on the above concept will be launched. The consensus mechanism can even participate in robot nodes like Sophia. .

Hu Jie believes that Libra has landed in various sovereign countries or regions, although there are many obstacles and difficulties, but it is not impossible in time. Blockchain technology provides a new algorithmic ledger that provides a relatively equal, relatively inclusive platform for Libra to achieve its goals, helping to reduce regulatory resistance in the promotion. What the future financial world looks like, or not known, is even different from the present. However, designing Libra based on the traditional financial system is not only a reasonable choice, but also a realistic choice. It is conceivable that Libra and other projects, starting from the existing financial world, take a step forward and achieve partial success, and then gradually evolve into the future world. It is also a possible performance path. Therefore, if Libra can fulfill its mission of global currency in whole or in part according to its roadmap, it will be a remarkable achievement in the history of human currency.

The consensus part of the two-person dialogue formed the following article, focusing on the regulatory difficulties that Libra will face.

Part I: Nothing new in the sun

The Jews said: There is nothing new in the sun. This comes from the Old Testament Ecclesiastes: "Is there a thing that people can point to saying that this is new? I know, in the era before our eyes, it has already existed."

Libra, who is talking about the various Libra coins, has no monetary logic innovation in the eyes of a financial person. This bluntly said, it seems a bit disappointing, designed to let everyone return to calm, see through the public opinion bubble to support Libra's monetary theory. These principles have long been known to financial people and applied to practice.

Of course, this is not to say that Libra has no features worth mentioning. Its characteristics are two: 1) the book that supports its issuance and circulation is a new algorithmic account book; 2) its main sponsor, Facebook, has 2.7 billion users worldwide, providing a rich soil for the application and promotion of Libra.

Libra's distribution logic does not jump out of the traditional monetary framework, but the characteristics of the above two technical aspects may still lead to market results worthy of attention. One day in the future, if Libra really has a significant share in the commodity market (and not just on the virtual currency exchange), the history of money may give Libra a milestone meaning because it will be the first The successful algorithmic book-based success currency.

Of course, whether this optimistic result will happen is still difficult to predict.

This paper first describes the traditional monetary principle supporting Libra, and then combs the technical characteristics of its algorithmic books. Finally, it combines Facebook's market advantages to explore some issues of concern, especially cross-border supervision.

Part II: Libra does not deviate from traditional currency issuance logic

According to its white paper, Libra's mission is to provide billions of people around the world: 1) a global currency; 2) its corresponding financial infrastructure. At its core is a global currency.

The logic that supports Libra's release is not innovative and is still in the traditional financial framework. Let us first sort out the traditional logic of currency issuance.

In an economy, any object that can act as a medium of exchange can be called currency. There are two ways of operating a currency, one is called basic distribution, and the other is called derivative distribution. The currency issued by the former is called the base currency, and the latter is called the derived currency.

There are two ways to issue the base currency: 1) out of nothing; or 2) anchoring.

Out of nothing, it means that the issuer of the base currency fills in the same number on the asset column and debt column of its own balance sheet according to free will. The asset side is called the base currency, and the debt side is called the perpetual interest-free bond. Then the basic currency is injected into the economy, and there are two ways to inject it: 1) purchase assets, and 2) lend to others. After the injection, the issuer's asset column is changed from the base currency to the purchased assets and the credits formed by lending. One of the foundations for the successful implementation of such a scheme is legislation. Such as: the United States Federal Reserve Act (1913) and the People's Bank of China Act (1995). Such issuers are often referred to as central banks. How to fill in this number is bound by the mission of maintaining price stability and is specialized in learning. The stability of the currency relative to the commodity supports the confidence of institutions and individuals in the economy to accept this currency. Law and confidence, both of which are successful in the success of such currencies.

The anchor release does not seem to be so arbitrary. The main point of this scheme is that the issuer espouses an asset owned by the issuer to a third party with credibility, and then generates the base currency for itself based on the escrow certificate. An asset of its own balance sheet is converted into a base currency according to this mechanism. Take the Hong Kong dollar as an example. Three commercial banks (Bank of China, HSBC, Standard Chartered Bank) with the privilege of issuing currency will administer their own US dollars to the Exchange Fund's Exchange Fund, which is then subordinated to US$7.80. A fixed ratio of Hong Kong dollars is issued in Hong Kong dollars. The rules stipulate that any commercial bank can exchange US dollars from the Exchange Fund at the same exchange rate at any time.

Whether a currency supports derivative distribution has two kinds of conventions: 1) support; or 2) no support.

In the case of supporting derived currencies, there is a type of franchise in the economy, often referred to as a commercial bank, that can lend in ways that are not fully reserved. That is, when a commercial bank holds a certain amount of X base currency, the upper limit that it can lend to others is αX, where α is a number greater than one. In China, for example, α is usually around 4. The borrower deposits the loan back to the commercial bank to form a deposit, and the deposit is a transaction medium whose payment function is the same as the base currency, so it is called the derivative currency. The rules stipulate that the deposit holder can withdraw or transfer the deposit. Therefore, when all the depositors of a commercial bank withdraw or transfer at the same time, the bank needs to provide the base currency up to the amount of αX. However, the amount of the base currency it holds is only X. At this time, it will form a state of insufficient support, called a run. This is a structural risk of lending in ways that are not fully reserved.

In cases where the derived currency is not supported, the derived currency does not exist. Of course, there is no risk of a run. (When the derived currency is not supported, it is not necessary to distinguish between the base currency and the derived currency, which is generally referred to as currency.)

As mentioned earlier, the total amount of currency = base currency + derived currency. The two can be simply added because they are the same regardless of the base currency or the derived currency, when they exercise the payment function of the exchange medium in the economy.

There are various currencies in the world, such as the US dollar, the renminbi, and the Hong Kong dollar. There are privately issued, such as meal tickets, shopping cards, recharge cards, and bitcoins. As one of them, the distribution method used is nothing more than a cross-combination of two distribution methods of the base currency and the derivative currency.

The core currencies issued by the general economy support derived currencies, such as:

The US dollar and the renminbi : 1) The base currency is born out of the central bank's subjective will; 2) supports the derivative currency.

HKD : 1) The base currency is issued by the issuing bank anchored in US dollars; 2) Supporting the derivative currency.

Some supplementary currencies in the economy usually 1) anchor specific asset issues, and 2) do not support derived currency. Give an example: Alipay balance.

Alipay balance : This object should be familiar to everyone, but as a currency, it is confirmed from the principle of money, non-financial professionals generally have not studied. The full name of this currency may be called "Alipay Balance" (the name is a bit long), and the issuer is any individual or institution. The issuance process is as follows: The issuer recharges the RMB in the number Y to the licensed third-party payment platform Alipay, which is essentially hosted there, and then the issuer will receive a new quantity of Y in a fixed ratio of 1:1. , called Alipay balance. It does not support derived currency, because any Alipay balance borrowing must be based on a full reserve, ie any individual or entity is technically unable to lend more than the Alipay balance that it actually owns. As you can imagine, the change in WeChat wallet, or the recharge balance in other third-party payment service systems, is the same type of currency.

So far, we have listed three examples of currencies in different distribution methods. So is there a fourth type? That is: 1) the base currency is out of nothing; and 2) does not support the derived currency. After the financial crisis of the 30s and 40s of the last century and the 2008 financial crisis of the last century, the advantages and disadvantages of issuing such a currency were repeatedly and seriously explored (eg, "The End of Financial Alchemy" 2015, Mervyn King The British economist, the former head of the Bank of England, but has not been implemented in reality.

In 2008, a rigid, blockchain-based signaling system emerged that “closed” to the fourth type above in some characteristics. This is the famous bitcoin.

Bitcoin : 1) The base currency is out of nothing; 2) The derived currency is not supported. It should be noted that there is an important difference between the out-of-the-box mechanism of the Bitcoin system and the mechanism of the traditional central bank. In the bitcoin system, nothing is based on the free will of the issuer, but on a random rule that is independent of the will of the issuer. The asset column and liability column of the balance sheet of the issuer (also the person or institution with the accounting node software, commonly known as the miner) will randomly appear the same number according to a certain algorithm. The asset side is called bitcoin, and the liability side Called equity. This is the process in which Bitcoin is born out of nothing. Bitcoin systems do not support derived currency because any bitcoin borrowing must be based on full reserves, ie any individual or entity cannot technically lend more than the bitcoin that they actually own. To put it another way: If everyone's expectations for Bitcoin are a successful currency, then they will be disappointed because their circulation is gradually decreasing and it is difficult to match the growing trading needs of the economy. Compared with commodities, the value of the currency will be deflationary. In fact, the value of Bitcoin is not to provide a successful currency, but to: 1) become a limited edition of digital artifacts; 2) demonstrate a new type of ledger, called an algorithmic ledger, whose application characteristics are next Section discussion.

The above is our explanation of the traditional currency distribution theory. In this theoretical framework, we look at the distribution of Libra.

Libra : Its distribution characteristics are similar to Alipay's balance: 1) The base currency anchors a basket of legal currency (including deposit and money market instruments, which are all components of the legal currency indicator M2); 2) does not support derived currency. The specific issuance process: the authorized Libra reseller, the owner's own, agreed basket of legal currency is managed by the Libra Fund to the authorized custodian, and then the corresponding number of Libra is obtained in the Libra ledger system based on the escrow certificate. . Resellers can sell and buy Libra on the exchange, and the opponent currency at the time of sale and purchase can be one of the world's mainstream currencies, depending on which exchange currency it is.

So, is there no difference between Libra and Alipay balances worth exploring? some. The most fascinating difference is that the books that support the distribution and circulation of Libra Libra are brand new algorithmic books, rather than traditional goodwill books.

Part III: Libra's trendy algorithmic ledger

The issuance and circulation of money, the infrastructure on which the operational level depends, is the book. The issue is simply that there is an extra number on an account in the ledger, and the flow is simply that the number increases or decreases between accounts.

Most of the traditional currencies, such as the US dollar, the renminbi, the Hong Kong dollar, and the Alipay balance, are called goodwill accounts. The core characteristics are as follows: 1) Accounting can be subject to manual intervention in essence, that is, intervention by the account controller; 2) The authenticity of the contents of the book depends on the credibility of the book controller, that is, the goodwill in the general sense.

The book that supports Libra is the same type as the book that supports Bitcoin, called the algorithmic ledger. The core features are as follows: 1) Accounting is performed independently and automatically by the same computer program on multiple equal nodes, and labor cannot intervene; 2) A small amount (such as less than 1/3) of the accounting node does not affect the recording. The authenticity of the account.

The comparison of the two types of ledger systems is as follows:

1) The truth of the book : the authenticity of the traditional goodwill book depends on the credibility of the book controller, including the legal constraints on the book controller; and the new algorithmic book, the authenticity depends on the confirmation The algorithmic logic of a transaction, which has been built into the accounting node software, is based on clever combination applications such as blockchain data structure, encryption theory, probability theory, and game theory. This makes the authenticity of the books get rid of the dependence on people.

2) Collection of books : The traditional goodwill account is actually a system composed of independent sub-books of many institutions, including the central bank, commercial banks, payment service agencies, other financial institutions, and clearing institutions. Sub-book. They need to meet each other's exact relationship, usually logically pyramidal. Its maintenance depends on complex management, sophisticated collaboration, and rigorous supervision. The newer algorithmic ledgers usually contain only a single sub-book, that is, all stakeholders share a ledger. This saves the trouble of the relationship between the sub-books.

3) Maintenance of the books: Each sub-book in the traditional goodwill account requires an institution (or individual) to control and maintain, which constitutes a large group of accounting institutions. Due to the relationship between the sub-books, the responsibilities and powers of the various agencies are not the same. Taking the RMB as an example, the central bank issues the base currency in a way that is out of nothing. The commercial bank issues the derivative currency based on the underlying currency in an incomplete reserve. Therefore, the central bank’s sub-book is at the top of the pyramid, which makes the central bank logically within the system. The ultimate power of supervision, recognition or denial of the correctness and compliance of all sub-books. However, in the new algorithmic book, all the accounting nodes have the same logical status. They independently verify and record each transaction, and each has the same complete set of books. Purely from a technical point of view, each billing node can join or leave the group of billing nodes at any time, without any damage to the authenticity and integrity of the books. This has led to the decentralization of the new algorithmic ledgers in management.

4) Account opening : In the traditional goodwill book system, the user can only choose to face a specific sub-book, and is therefore subject to the maintenance of a sub-book is willing to provide such services. In the trendy algorithmic ledger system, users open an account in one step, directly facing the globally unique large ledger. And from the operational level, the account opening for accounting is only a process of downloading, installing wallet software, setting connection parameters, without obtaining the approval of any account controller. This greatly reduces the threshold for opening an account.

In summary, compared with the traditional goodwill account book, the characteristics of the new algorithmic book can be summarized as: book normalization, authenticity algorithmization, decentralization of accounting nodes, and account opening autonomy.

It can be seen that although Alipay balance and Libra are as twin brothers in the currency issuance logic, their respective bookkeeping systems are in a different position. Therefore, the application characteristics of Libra Libra are worth exploring.

In particular, Libra's application features may be dramatically magnified and highlighted, as Libra's founder and leader Facebook has 2.7 billion users and its users span national borders and across the globe.

Next, we will explore by answering a series of questions.

Part IV: Libra's Global Mission and Advantages

Libra and Alipay balances belong to the same category in the currency distribution model, but the era of their birth, the mission of positioning, and the application scenarios are all different, which leads to differences in details. The two are compared and reviewed, so that the reader can understand the new features of Libra, and does not mean to lower the Alipay.

Simply put, the main difference between the two is determined by the application orientation: Libra is for global users and Alipay is for Chinese users.

Massive customer globalization : The number of users of Alipay balance is 1 billion, and Libra can leverage Facebook's existing 2.7 billion users (the efficiency of user conversion in the future depends mainly on whether Libra's application scenario is attractive. Considering the richness of Facebook's paid apps, the industry has a positive expectation. Libra users have a feature that is global. Facebook has fewer than 200 million users in the United States, accounting for only 7% of its global users. The users of Alipay balances should be mostly Chinese or open in China.

Libra Free Exchange : According to the concept of the white paper, Libra will enter exchanges around the world to realize free exchange with other currencies. This helps it penetrate the user base around the world. Since the Alipay balance cannot be freely exchanged for other currencies (the anchored RMB is also not available), a resident of the Eurozone cannot fill the Alipay with the Euro and obtain the Alipay balance. This is a very essential obstacle to the internationalization of Alipay balances.

Decentralization of monetary governance : Libra's books are maintained by 100 equal accounting nodes. (In theory, the number of nodes can be increased or decreased at any time, and its white paper even mentions the possibility of completely opening the node after five years.) The qualification requirements for the accounting node are open and can be applied by any institution worldwide. Its governance committee consists of one hundred votes for each of the 100 nodes, and Facebook is just one of them. This gives Libra coins an open and inclusive global orientation. Alipay balance is a currency controlled by a private company, and Libra is more like a global currency issued by the same body. This feature is also reflected in the name Libra Libra: fair.

Internationalization of anchored assets : Before the launch of Libra, Libra had a lot of speculation about whether its anchored assets were dollars or a basket of legal coins. It ultimately chose a basket of French currency, which we believe will help achieve the goal of “providing a global currency”. Conversely, if Libra is anchored in US dollars (or any single currency), it will make it the shadow currency of the anchored currency, which may have an adverse effect on its global reach. In contrast, the Alipay balance is anchored by a single renminbi, and its role will be locked into the vest of the renminbi.

Part V: Can Libra achieve its global mission?

There are certain advantages, but the challenges are also great.

The advantage lies mainly in the user's foundation. As mentioned earlier, if the Libra wallet is built into Facebook's 2.7 billion APP terminal, the opening promotion speed should be very amazing. At the same time, the opening of the algorithmic ledger is autonomous. In operation, any one downloads a Libra wallet software from Libra, installs and sets up the connection parameters of any one or more billing nodes independently, that is, if it is successfully opened, it has the ability to receive, hold, and pay the Libra coin. Libra's ability.

However, the challenge comes from how Libra has landed an economy and how to get approval from the regulatory authorities of the economy. Users who use any currency belong to a country or an independent administrative region, both physically and/or physically. Whether or not it can use a currency will inevitably be subject to local legal and regulatory requirements.

Q: How does Libra affect the financial regulation of an economy?

For regulators, it is only when the account holder and the operator of the currency meet the further requirements that the account opening in the regulatory sense is completed. These requirements include:

1) KYC: Know Your Customer; 2) AML: Anti-Money Laundering; 3) CFT: Combating the Financing of Terrorism.

the more important thing is,

4) The details of the circulation of the currency must be subject to the inspections deemed necessary by the tax authorities and the taxation of the economy has been guaranteed.

In addition, many countries may have additional regulations, including:

5) Whether cross-border payment is allowed, that is, the identity of the users who pay and receive the Libra users, whether they are located on both sides of the border, etc.; this involves issues such as funds entering and leaving the country, and trading tariffs;

6) Domestic residents (local or foreign), which currency can be used to trade Libra in the exchange: This involves the issue of foreign exchange control.

In response to the above requirements, the Libra Association needs to negotiate with the relevant regulatory authorities and implement it. But this is not an easy task. If the authorities do not let Libra land for any reason, simple technical means (such as blocking access requests to the billing node) can help achieve its purpose, and not to mention the deterrent of the law.

Finally, if an economy allows Libra to land, the authorities also need to consider the impact of their monetary policy. See the next question.

Q: How does Libra affect the monetary policy of an economy?

1) Since Libra is anchored, we first look at what impact the anchored currency is affected.

For the sake of discussion, assume that 100 Libra coins are anchored for $40 + €30 + £10 + 10 yen + 10 RMB. For every 100 Libra coins issued, Libra has a reserve fund of $40 into Libra, no longer in circulation. Then, for the Fed, when examining the impact of dollar circulation on transactions in its economy, it is necessary to assume that the anchored dollar “disappears”.

The above is the front side of the coin. The reverse side of the coin is: A considerable part of the transaction in the dollar economy will be exchanged with Libra as the medium of exchange, that is, the demand for the dollar in trading activities in the economy will also decrease.

To sum up two points, how many dollars are issued to match the needs of the economy, you need to rethink.

The above is the actual impact. For monetary statistics, the $40 (deposit or money market instrument) entering the reserve fund is still covered by M2, so the M2 of the US dollar is not reduced by the release of Libra.

2) What is the impact of the economy that allows Libra to land?

There is no need to assume that the economy's own currency has entered a basket of legal coins anchored by Libra.

Allowing Libra to land in an economy is equivalent to allowing two currencies to compete, one is the original currency and the other is Libra. The two will be different, and the demand for the original French currency will definitely decrease. In extreme cases, it is conceivable that the economy is dominated by Libra, the “library coinification”.

3) From the above two points, we can see how Libra's monetary policy affects an economy is two points: First, whether its legal currency has entered a basket of Libra's currency; Second, whether the economy allows Libra landed in Libra, and its trading volume is large.

Q: Can Libra improve the efficiency of cross-border settlement?

1) Because Libra uses a new algorithmic ledger, it only contains a single ledger, eliminating the management of the relationship between sub-books, and clearing the settlement efficiency should be greatly improved. This is especially true for cross-border remittances.

2) Of course, when multiple billing nodes jointly maintain a single ledger, it takes additional resources and time to reach a billing consensus for each transaction. When all transactions in the world are indiscriminately flocked to a single book, the volume of transactions that the book can handle can become a bottleneck for efficiency. Since Libra has only 100 billing nodes, hardware enhancements and algorithm improvements on the nodes, so that processing efficiency to keep up with actual trading needs, should not be a big obstacle in the future.

Appendix: Some common problems in the workshop

The following discussion of some common problems in the workshop, we recorded after the encounter, gathered here.

Q: In the distribution system of Libra Libra, did someone get a coinage tax?

If the currency issuer obtains a value that exceeds the cost it pays by issuing the currency, the excess is called the coinage tax. Looking at the aforementioned currency issuance logic, the issuer of the base currency is likely to obtain assets that exceed the cost of its coinage, that is, the coinage tax, only when the base currency can be issued out of nothing.

Libra is anchored and the issuer must give up a basket of currencies to get the predetermined amount of Libra. In this case, no one gets a coinage tax.

For the same reason, there is no coinage tax on the issuance of Hong Kong dollars by Bank of China, HSBC, Standard Chartered Bank, etc.

(Someone defines the coinage tax more broadly, that is, it not only includes the assets exchanged from the coin, but also the subsequent income generated by the asset. Thus, the interest generated by the assets exchanged in the base currency, the deposit and loan spreads generated by the derived currency, etc. Under the definition of coinage tax, the interest income earned by Libra's reserve fund can be counted as a coinage tax. However, I do not tend to use this definition because the acquisition of assets is clearly separated from the income from subsequent operations.

Q: Does Libra have exchange rate fluctuations relative to the US dollar?

The currency in which a single legal currency is issued is anchored. If there is no derived currency, the exchange rate will not fluctuate relative to the anchored legal currency.

Libra's anchored assets are a basket of legal currency, not a single currency, so its exchange rate relative to a single currency may still fluctuate.

Looking at the Hong Kong dollar, it anchors the single currency of the US dollar, but because it allows the derivation of currency, its exchange rate relative to the US dollar is also floating. It is only due to the meticulous management of the Hong Kong Monetary Authority that the exchange rate fluctuates little; this is called the linked exchange rate.

Q: Libra is worried about being run on?

do not worry. Libra is anchored by a basket of French currency, deposits containing currency and money market instruments (all part of the French currency M2). This basket of legal currency will be managed by a high-credit custodian and will no longer be converted into other assets. Therefore, there is no risk when someone asks to use Libra to exchange the agreed basket of coins.

Q: Can Libra Association successfully manage?

To be observed. There are precedents for multilateral international organizations in the financial industry, such as SWIFT, VISA, MASTER, etc. Their operation and governance models can be used for reference.

Q: Will the business of traditional commercial banks be replaced?

The business of traditional commercial banks is deposit, loan and payment.

It can be imagined that if the legal currency is sucked away and managed by the Libra system, its deposit, loan and payment business will be affected. Among them, Libra's payment business will compete directly with traditional commercial banks.

As for how much to suck, it depends on the future development of Libra.

Q: Libra will crush Alipay and WeChat wallet?

If China allows Libra to land in China, its business will of course compete directly with Alipay balance and WeChat wallet.

But it is hard to imagine that this "if" will become a reality in the short term.

At present, the impact of Libra on sovereign currency has not been accurately assessed, and many countries are cautious about letting Libra land.

Q: Will Libra generate more financial services?

It is conceivable, such as direct loans, especially cross-border loans.

Q: Libra will make financial services more popular?

A person who has an account is the first step in enjoying financial services. Regardless of the regulatory factors, Libra’s account opening is easier to operate.

In addition, Libra transfer fees are lower, especially when it comes to cross-border payments. According to McKinsey's 2016 report, the current cost of a US bank's cross-border payment of US dollars through a correspondent bank is $25-35. It can be imagined that Libra's cross-border payment can reduce the cost by more than one to two orders of magnitude.

Q: If Libra is used for international remittance, how many Indian rupees do you need to put in the bank of the target country (such as India)?

The Libra Association does not have to worry about this because it can be solved by an exchange in the ecology.

The ecology of Libra's white paper is as follows:

1) 100 billing nodes; its controller, one node and one ticket, constitutes a 100-person management committee. 2) A reserve fund, managed by the 100-member management committee. 3) Balanced distribution of asset custodians around the world, accepting assets under the reserve fund. 4) Exchanges that support Libra trading. 5) Numerous authorized resellers: They handed over a basket of French currency assets to the reserve fund in exchange for Libra and then sold them on the exchange. They also have the right to sell Libra to the reserve fund at any time. 6) Libra's regular users.

Q: If Facebook builds its own business ecosystem, then assuming that Libra is anchored at $10 billion, how is the currency's circulation rate estimated in the Facebook business closed loop? Will the currency flow rate increase much more than the offline economy?

1) Currency is the medium of exchange. The speed of circulation of a currency depends mainly on the frequency of commercial activities (replacement of money) and financial activities (for money for money). The operational efficiency of money transfers has an impact on the speed of money circulation, but it is not fundamental.

2) The estimation of the Libra circulation speed of Libra is logically the same as the traditional currency, which depends on the underlying commercial transaction and financial transaction characteristics. On this basis, consider the correction caused by the Libra transfer efficiency of Libra. If you deviate from its (future) application scenario to predict its turnaround speed, it jumps logically.

3) It is conceivable that Libra's ease of operation (relative to bank accounts), high population penetration, and convenience of cross-border transactions help to improve its turnover rate.

Q: I would also like to ask if Libra has a positive meaning for strengthening the status of the US dollar. If so, what path is it adopted?

1) The so-called monetary status refers to the extent to which it is accepted by participants (natural persons and institutions) of economic entities. Specifically, one is the proportion in circulation, that is, the volume of transactions using it as a trading medium; the other is the proportion in reserves, that is, how much money is retained by natural persons and institutions as deposits. The factors that determine the strength of a currency are: first, the stability of its value, that is, the stability of being able to be converted into physical goods/services; secondly, the scope of its acceptance; again the convenience of its use. The formation of the above three factors has its own, but also affect each other, not here.

2) If Libra is 1:1 anchored to the US dollar, then it is another expression of the US dollar. This expression can improve the latter two of the above three factors, and the positive position of strengthening the dollar is positive.

3) But the fact is that Libra is not 1:1 anchored to the US dollar, so its impact on the dollar's status remains to be seen.