Zhou Xiaochuan: Libra represents the trend of digital currency, China should take precautions

The Libra cryptocurrency project released by Facebook has once again attracted attention. On July 9th, at the seminar on “China's Foreign Exchange Management Reform and Development”, Zhou Xiaochuan, former president of the central bank and president of the China Finance Association, said that Libra's attempt to peg a basket of currencies represents a possible global future. The trend of currency. In response to this future trend, Zhou Xiaochuan pointed out that “it is necessary to make policy research ahead of time. It is good for us to check potential risks ahead of time”.

As the longest president of the central bank, Zhou Xiaochuan has been studying digital currency. This time, he mentioned that Libra has two major improvements over the previous digital currency. First, it absorbs the lessons that cryptocurrencies have been too successful in the past, and can avoid large fluctuations in currency and speculative components. It is understood that Libra will be supported by real asset reserves in order to avoid price volatility like most digital currencies. Each newly created Libra currency requires a basket of bank deposits or high-quality government bonds, which keeps Libra's currency relatively stable.

Second, Libra is targeting hard demand in cross-border areas. Zhou Xiaochuan said that Libra has seized the weakness of past inconvenient cross-border transactions and proposed its own cross-border program. Between developed countries, with the application of swift, the problem of cross-border payment is not significant. However, for some small international organizations and backward developing countries, remittances, especially for remittances of immigrant workers, do have cross-border payments.

Libra, as an encrypted digital currency issued by Facebook, has been hot for some time. Since the official launch of Libra's official website on June 18 and the release of the white paper, it has even led to a general increase in the price of digital currencies worldwide, with bitcoin prices breaking through the $12,000 mark on June 26.

Zhou Xiaochuan believes that Libra will not be successful, but with this idea, it will have an impact on the current system. This is not only the impact on traditional business and payment systems, but also the idea of ​​trying to focus on a basket of currencies. There may be a trend toward a global currency in the future. “There may be a more international and global currency in the future. It is a strong currency, leading to the exchange of major currencies and it. This thing is not necessarily Libra, but from the trend of recent years, there will be no Less institutions and personnel are trying to build a currency that is more conducive to globalization.” Zhou Xiaochuan said, “In the process of convergence and integration of RMB and foreign currency, we need to consider the pressure on us.”

So how should we deal with this future trend? Zhou Xiaochuan believes that “it is necessary to make policy research ahead of time. It is very beneficial for us to check potential risks ahead of time. We need to have forward-looking preparations in policy research and reserves, and try to be in the possible crisis. Reduce your weakness."

Among the successive central bank governors, Zhou Xiaochuan is the longest-serving and the most internationally influential. During the hedging of the central bank by Zhou Xiaochuan, the central bank’s digital currency research and development has been promoted. Therefore, Zhou Xiaochuan’s views on Libra have also attracted widespread attention in the market.

Prior to this, industry analysts and regulators have warned of the possible impact of the global digital currency on monetary policy. Mu Changchun, deputy director of the Central Bank's Payment and Settlement Department, recently issued a document stating that the emergence and development of such stable currency as Libra cannot be separated from the support and supervision of the central bank, both from the perspective of monetary policy implementation and macro-prudential management. Incorporate the regulatory framework of the central bank.

On July 8, Wang Xin, director of the Central Bank Research Bureau, said that Libra solved the problem of trust and widespread use to a certain extent, but as it is further used, will it play more of the functions of the currency, or will be responsible for monetary policy and finance of various countries. Stability and even have a major impact on the international monetary system. In fact, behind the currency are interests, power, international politics, and diplomacy. If a payment instrument, even the function of money, will inevitably impact the legal currency, it will have a direct impact on a country's currency regulation, financial regulation and other aspects. In the field of currency, which involves national sovereignty, it is necessary to open a big question mark to open up the so-called international currency and a super-sovereign currency. In this regard, the direct issuance of digital currency by the central bank will help to improve the effectiveness of monetary policy, and in the future, it will promote the development of central bank digital currency.

Source: Beijing Business Daily

Reporter Meng Fanxia Ma Wei Intern Li He