Dragon White: Libra is a skyscraper built on the beach

Article source: Star joint venture (WeChat public number) Original title: "Dragon White: Libra is a skyscraper built on the beach"

On June 25th, the first event in Beijing, “The Impact of Libra Currency and China's Countermeasures”, sparked heated discussions and extensive attention. On the afternoon of July 2, 2019, the Shanghai Forum on the Impact of Libra and China's Countermeasures , sponsored by China Blockchain Application Research Center and the All-China M&A Association Blockchain Professional Committee, was held in the Putuo District M&A Museum.

Nearly 200 spectators, including psychology, experts, media and practitioners, participated in the event and witnessed the release of the report, focusing on industry wisdom and sparking thinking. After the hot scene in Beijing, I once again witnessed the importance attached to Libra and the concern for financial change.

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The following is the theme of "Lianli Coin in the Perspective of Currency". Xinhua News Agency reporter Wang Linlin shared with Dr. Long Baiyu, Ph.D., Ph.D., Tsinghua University and Independent Monetary and Financial Research Institute:

Wang Linlin: Let's ask Dr. Long to share with us how you think about the impact of Libra.

Dragon White : Thank you, everyone read my article and I know that I am a computer, so sitting here and discussing financial finance with professional people, I think this is a bit interesting. I have agreed with many of Zhu Chen’s views just now. One of Libra’s basic judgments is to build skyscrapers on the beach.

What is the beach? The legal currency system, the skyscraper is the currency system of the above number of coins. The beach describes the fragile system of the French currency itself. This fragile I no longer need to prove that from the outbreak of the global financial crisis in 2008 to the present, the world has not emerged from the economic recession, so the vulnerability is obvious.

But Libra itself is really a genius design. Why is it a genius? In the first place, to some extent, 100% of the interests of commercial banks are actually protected. I will explain them later. So from this perspective, it is in fact consistent with the interests of the traditional banking system.

On the other hand, Libra has dressed himself as a very pioneering image, which has aroused widespread resonance and enthusiasm in the new world and the old world. The whole world is discussing it and praising him for being fair, open and democratic. I will explain later. Therefore, I said that his genius is a genius of packaging. On the one hand, it protects the interests of the vested class, but on the other hand it stimulates the enthusiasm of the whole world.

I just talked about the Fed, the Bank of England, and today BIS also spoke, and will support similar things. In essence, what Libra does is in line with the appetite of digital currency regulation. On the other hand, the big tide of digital currency is unavoidable, so under the premise that the tide is unimportable, Libra is the best system if it manages the currency financial system through a centralized solution.

What kind of convenience does Libra provide as a centralized central bank for the traditional central bank? First, Libra actually monopolizes the right to issue currency. This is very important. why? Because in the traditional world, the central bank does not monopolize the right to issue currency. It is likely that 99% of the people do not know that most of the world's circulating currency is not created by the central bank, but created by commercial banks. Therefore, the ordinary people squat at the central bank to print money and issue money. In fact, the central bank is in a certain degree. The vast majority of banknotes, for example, 97% of the currency in the UK, 95% of the currency in the United States is created by commercial banks.

Therefore, Libra's creation of currency means that the central bank has a unified entrance and can strictly control the issuance of (countercoin) currency. With this power, the central bank's monetary policy will be more effective, called the so-called monetary policy transmission mechanism, including unconventional monetary policy, such as negative interest rates. Negative interest rates are now also being carried out, but now negative interest rates are all false. Negative interest rates are for central banks to commercial banks, but do commercial banks have negative interest rates for ordinary people? No, so now negative interest rates are fake. But with Libra, it’s easy for the central bank to make negative interest rates. This is the first point.

The second point Libra can provide the central bank with unprecedented control. Where does this control come from? The first one comes from data, Facebook's social data, and Libra's financial behavior data, so don't think about it. In addition, the blockchain provides traceability, auditability, and non-tamperability. So once this thing goes to the central bank, the central bank has never had a strong weapon in human history, and it has control over the monetary and financial system. You can use cash when you have cash. If you hold cash, you can't manage it. The central bank can't control you. (Note: “Management” refers to the function that an individual can access the monetary and financial system, such as paying in cash)

But the biggest problem is centralization. This is what many people don't realize. So in the central bank system, it is a nonsense to talk about the alliance chain. Why? Because the ultimate control of the alliance chain will eventually be in a small number of people, what kind of governance mechanism do you rely on to balance the control of the alliance chain? There is no mechanism to check and balance, except for 100% of the public chain. Therefore, Libra itself is based on the mechanism of the alliance chain, and will not develop to the public chain in the future. So the central bank really likes this thing, this is 100% controlled. In the future, the central bank can deny the right to personally access the monetary and financial infrastructure.

Another point why the central bank likes Libra? One is control and the other is 100% of the currency. Wang Linlin: I heard that Zhu Chen’s incitement to Libra and fiat money is still relatively stable. What does Dr. Long think?

Dragon White : I actually agree with Zhu Chen, you are dependent on the legal currency system, so you can't shake it. Libra's relationship with the legal currency system, the most important thing is to look at the reserves, what is Libra's reserves? If the reserve is a legal currency, I have not finished the last question. If the reserve is a legal currency, it is actually 100% protecting the interests of commercial banks. Why do you say this? Because you are doing some kind of trading in the currency.

You have to know that we usually use the currency, the renminbi, the US dollar to make transactions, and make payments. In fact, everyone is implicitly paying the coinage tax for the banking system. At the same time, the exchange of your currency for Libra is the same. Many people may say that there is no cost to me when I get $1 for Libra. In fact, there is a cost. This cost is calculated according to the opportunity cost. Let's go back and understand the concept of opportunity cost. You only need to use French currency as a reserve. The whole part of the Libra-based monetary system is actually countable. I have calculated all the articles in my article.

In other words, some of the coinage tax will be transferred to commercial banks without any omission. This process does not require commercial banks to participate in Libra's ecology, so many people do not see the participation of banks, it is not important, as long as the reserves are legal currency, most of the Libra system's coinage tax is owned by commercial banks, you can clearly understand this ideal. understood. But Libra's reserve choice is a national debt, which is not the same, it is equivalent to a truly independent central bank.

From this perspective, you are parallel to the traditional central bank. So who is the infringement of your interests at this time? For example, in the United States, we don’t talk about a package first. We talk about the US dollar. What kind of interests does Libra choose to infringe on US debt and choose the US dollar? What is infringing on the interests of the Wall Street giants, why? Because the dollar itself is actually controlled by Wall Street, everyone should not believe this thing.

However, from another perspective, US Treasury bonds, although they have some degree of control, are still mostly in the hands of the US government. Libra chose to rely on the US debt to mint the final credit system is linked to the US government, you replaced the middlemen (Fed, commercial banks). From this perspective, you choose US debt as a reserve and you infringe the interests of commercial banks.

From this perspective, everyone understands that from the very beginning, Libra will never completely choose bonds as a reserve. Because the choice of bonds as a reserve commercial bank can not drink a soup, this is the reason in Libra's system. At the beginning, you may choose to use the legal currency as the main currency, and take a bond. Why do you want to take the bond? Because the more debts the coinage tax, the more Libra is divided. As for the principle, everyone goes back to see my article, which is very clear.

When Libra's wings are hard, when can I not buy commercial banks, I can kick it off, choose fewer coins, and choose more bonds. However, in the process of selecting more bonds, the final credit system is still based on national sovereignty, so from this perspective, it is still in the interest of the United States, but it does not necessarily meet the interests of Wall Street.

We can take another step forward. Do we have other stock options? For example, Bitcoin, Bitcoin does ask me this thing. I have written it in my article. I suggest that the choice of future reserves can choose Bitcoin. Why? This will reduce the color of Libra dominated by sovereign states and make the process of coinage more democratic. Essentially what is the reserve? The ultimate beneficiary of a monetary system is the owner behind the reserve. Choosing bitcoin as a reserve can make the beneficiaries of the monetary system more dispersed and thus demonstrate democratization. Wang Linlin: The birth of Libra coins, and the emergence of Libra coins in the future, will it bring a negative effect on the digital currency of the past digital currency and bitcoin?

Dragon White : It is definitely good, there is nothing to say. One of my only judgments about the future value of Bitcoin is to make a reserve. Don't believe that it is absolutely like this. It can only be used as a reserve for a second purpose. So from this point of view, Libra's nature of the tube, regardless of whether it represents the interests of Wall Street, represents the interests of power, in fact, is not important, why? The most important thing is that more people in the world know about digital currency. More people know about bitcoin. They also know that bitcoin may be a better reserve. From this perspective, bitcoin will actually increase its value. This is the first. Conclusion.

But many people think that the price of bitcoin will rise is not infinitely high. It is absolutely not. Just like gold, when is the price of gold we see is infinitely high? Gold is actually the largest value on earth as a reserve. The practical value of gold is very low. Everyone knows when reading.

From this point of view, the value of Bitcoin can be calculated. I have a model, but I don't have to talk about it today. why? Reserves are used to support currency issuance. The income of money is interest. Bitcoin participates in currency issuance to form interest income. You can get a future cash flow. Its net present value is the price. You know it by yourself and you can definitely calculate it. of.

What is involved in this issue? I was still discussing with people just outside. If Bitcoin can be used as a reserve, can other digital assets be used as reserves? My answer is yes, but other digital assets have shortcomings as stocks. The disadvantages are that the volatility is too high, and the concentration is too high. They are controlled in a few hands, and many of them have small market capitalization.

It doesn't make much sense to have a small market value. What is generally suitable for stocks? It's very simple to look at the central bank's issue of currency. A very important mechanism is called collateral management. What kind of assets can be used as a list of eligible collaterals entering the central bank's collateral management framework. The world is basically a bond. What?

The first qualification is high, the second circulation is large, the third liquidity is good, and the fourth concentration is relatively scattered. You can't say that this thing is held by a country. Basically, you can meet these standards. With participation, the central bank can be selected into the eligible collateral list to participate in the issuance of currency, and the digital currency world is the same.

Therefore, if a certain digital currency asset has such characteristics, for example, the market value is relatively large and the liquidity is relatively good, the concentration is relatively scattered and the volatility is relatively small. In fact, it is suitable for participating in the reserve. The best is Bitcoin. Wang Linlin: How does China respond to this incident that may affect the legal tender and the current monetary system? How should China do it? Is there any suggestion?

Long Baiyu : In fact, it is basically biased towards Zum. The topic of digital colonization has two aspects. The first one is really impossible for small countries. Argentina is indeed a good example. What was the purpose of Argentina when it first chose to be dollarized? In fact, it is based on the credibility of the dollar. But once you use it, you find that you don't have the financial power. If you don't have the financial power, there is no independent monetary policy. This will bring a lot of messy problems. Later, Argentina gave up the dollarization, and now it is revisiting this piece. thing.

The first level of the answer to the digital colonization is no way, because it has both advantages and disadvantages. The second aspect, everyone to study the euro, the euro is actually the first real so-called super-sovereign currency, and the euro's dozens of euro-zone countries are very strong. How did the European Central Bank govern these dozens of countries? The European Central Bank actually has no fiscal power. The following countries, especially Greece and Italy, have violated the fiscal regulations of the European Central Bank.

How does the ECB cure it? Either cut off the clearing channel for you, let the banking system of your entire country collapse, and Greece has happened. All the Greek government immediately surrendered, this is the first means. On the other hand, when the European Central Bank monopolizes the currency rights of the euro zone, each euro zone country does not have the right to issue currency. When he wants more money, he is actually very restrained.

At this time, for the euro zone countries below, it is still important to have a certain degree of currency distribution rights. At this time, the ECB president designed a program, what program? If your country is well on the fiscal discipline set by the European Central Bank, there are a bunch of conditions, such as government deficit, employment rate, inflation rate, and you are well attained. Your country’s sovereign debt can be used as collateral. The euro's asset purchase plan.

The asset purchase plan says that the central bank sends out banknotes, and the central bank buys your debts to give you money. The essence is this. In this way, the European Central Bank has established a system to require sovereign states to comply with the European Central Bank's fiscal discipline. On the other hand, it also gives the following countries a certain currency issuance power, so this policy came out last year or this year. Everyone thinks this is the ECB president because he retired in November, which he left for the euro. The largest heritage of the district.

why? This balances the contradiction between the euro zone countries and the European Central Bank to a certain extent. Before the confession, there is no money distribution right. I now give you an opportunity to give you a little money to issue money as long as you comply with fiscal discipline.

Why do you say this example? In the future, Libra will wait until the European Central Bank. Those small countries will wait until the current Eurozone countries. Libra actually has a strong means to influence the fiscal policies of these countries, but Libra can also provide some opportunities for him to have a certain degree of financial dominance. right. Wang Linlin: How did China deal with it?

Dragon White: How does China respond? In fact, at five o'clock, copying a Libra to improve is improved from several aspects:

1. Change the mechanism of the coinage tax distribution, because Libra's coinage tax is now monopolized, and simple changes allow all users to participate in the distribution of the coinage tax.

2. Let Libra's infrastructure construction, let's say that its libra investment token is more decentralized and longer-tailed. Now the front end, 100 nodes, is essentially a monopoly.

3. Change the structure of the reserve. I just talked about the issue of legal currency and debt, and more to choose debt. Why? The choice of debt is actually Libra's income with a larger coinage tax. But from this perspective, Libra has the benefit of a larger coinage tax, so that the benefits can be given to the user, so that users use Libra stable currency, we assume that the stable cost or the legal currency equivalent is lower.

4. Change the risk structure of Libra, because Libra has a lot of system risks, and has not been mentioned today. Yesterday, President Zhu Min also said at the Davos meeting that Libra has a high leverage risk. The leverage risk mainly comes from the traditional commercial banks and shadow banks with leveraged funds to enter the Libra system. So from Libra, it is very important to limit the traditional leveraged funds into the Libra system.

5. Limiting the free flow of international capital, Libra itself is financial liberalization, and international capital is too free to flow. In fact, it is not good. Research work also proves this, including the BIS work report also proves this. Telling everyone that the free flow of capital in emerging countries is actually not good, but many economists are still bullshit about it. So my suggestion is that even if China wants to copy a Libra, you have to move the current system of RMB and foreign exchange casings into it. The biggest benefit of this thing is protection, because the capital flow brought by Libra will strongly impact the financial stability of the sovereign legal currency system of a sovereign state. So you have to reduce its impact on financial stability. Question: What do you think about the relationship between Libra and Ethereum's open finance?

Long Baiyu : I fully agree with this. In fact, it is the case. In essence, the collateral management framework is applied in the public chain, but it is really a so-called decentralized financial application. From this perspective, the potential is unlimited. But what is its biggest problem? It lies in the distribution mechanism of its coinage tax.

It is essentially a stable currency system that replaces the legal currency from a certain perspective. But its threshold is very high, why? After you take things to mortgage, you exchange a stable currency for you to use, and when you run out, you will pay for it when you return. What does this mean? If you are not a professional financial person, if you can't make a profit with the stable currency you have exchanged, then it is not necessary to do this (exchange MakerDAO stable currency).

If you change the stable currency, you will have a handling fee immediately. Before you return it, you must earn a fee in some way. This is a good deal. So from this point of view, it is difficult to become a universal currency, because the threshold is too high. But this is essentially a question of business model design, not a technical one. The final currency must be issued based on asset collateral, and must go to the center. Now the real center is MakerDAO. Its business model determines that the threshold of the participants is too high, so it is impossible to become a widely accepted stable currency. Can be a few people to play. So the way to stabilize the currency in the future must be this way, but the business model has undergone some changes, and this topic has not started. Wang Linlin: We can see that Libra is a digital currency without borders. Although circulation is borderless, every user has a national border. How can we continue to consolidate the international status of the RMB in the future? I believe that there is still a long way to go. We need us to not set innovations to set up negative lists. We also need to embrace both failure and success.