Economic Daily | Libra, is the super currency coming? Zhou Xiaochuan said this

Similar to the situation when Bitcoin first appeared, the digital currency has been hot again in recent days, but this time, the protagonist is called Libra .

On the afternoon of the 17th, the US House of Representatives held a hearing on Libra. Calibra CEO Marcus acknowledged in his answer that Libra will compete with Alipay WeChat and hope that Libra can become a global electronic currency. He once again stressed that Libra will not compete with the dollar.

Libra is a digital currency project released by Facebook, the global social media giant. The Libra White Paper claims that its mission is to create a simple, borderless currency and financial infrastructure that serves billions of people.

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Some people think that Libra can become a digital currency that surpasses sovereignty, which will greatly improve the efficiency of global payment and liquidation, and then subvert the existing monetary system. However, it has also been suggested that Libra is not only difficult to pass the regulation, nor is it the currency. It is impossible to replace legal tender, let alone subversion.

What is different this time?

What is the difference between Libra and Bitcoin?

As you can see from the Libra white paper, Libra plans to become an international reserve currency that is decoupled from sovereign countries and can maintain long-term currency stability. It seems that Libra seems to have the conditions to be a super-sovereign currency – linked to a basket of currencies. There is no currency creation function based on the pool of legal currency reserves, there will be no coinage tax, and there is no real monetary policy.

Zhou Xiaochuan, president of the China Finance Association and former president of the People's Bank of China, believes that Libra has made at least two important improvements on the basis of past cryptocurrencies : on the one hand, it has absorbed cryptocurrencies and has been eager to establish transactions. Lessons from the market to avoid currency instability and speculative components. Libra's white paper shows that in terms of asset reserves, it is effectively linked to a basket of fiat currencies, using 1:1 reserve assets as a guarantee, which is 100% reserve preparation;

On the other hand, Libra is targeting the needs of cross-border areas with the advantage of 2.7 billion global users. For developed countries with the Global Interbank Financial Telecommunication Association (Swift) system, the existing payment methods have little difference in efficiency, while small economies and developing countries have large numbers of immigrants and semi-immigrant workers, generating a large amount of remittances. However, cross-border transactions, especially remittances, are not efficient. Libra has seized the pain point of its cross-border transaction costs, high time, inefficiency, and user dissatisfaction.

In addition, in terms of management, Libra also stressed that its operations management will be carried out by a non-profit organization, a coalition of representatives, the legal currency included in the reserve will be owned and managed by the foundation, the reserve will be placed in bank deposits, or used to purchase Strong government bonds.

Can it replace the legal currency?

Can Libra really surpass sovereignty to become a super currency? Most industry experts believe that no matter how much Libra looks like money, it is difficult to break through sovereignty and solve credit problems. The potential risks of money laundering, illegal trading, and terrorist financing are also inseparable.

“Libra has to go a long way to become a currency.” Li Yang, chairman of the National Finance and Development Laboratory, said at the “Mobile Payment Innovation Service Industry Upgrade and Quality Development Seminar” that he believes that the currency is The sovereignty of a country, and the great powers will never give up control of monetary sovereignty.

“Libra is linked to a basket of French currency, which seems to solve the problem of large price fluctuations, but it still cannot change the nature of it.” Sheng Songcheng, former director of the Survey and Statistics Department of the People’s Bank of China, believes that a core issue is that Libra still has no country. Credit support, no central adjustment mechanism, and how the currency value remains stable is questionable. After all, Libra's reserve assets are not directly issued by the state. Therefore, how Libra regulates currency fluctuations and maintains credibility according to trading needs cannot be compared with the national standard currency.

It has been suggested that Libra looks like the Special Drawing Rights (SDR) launched by the International Monetary Fund (IMF). But in reality, the difference is that the SDR is linked to the major international currencies and has been recognized and participated by all countries. Libra, if only based on Facebook and other users represented by the alliance, may not be able to circulate smoothly around the world . What's more, SDR has so far only been a supplementary official reserve asset between the governments, and it has not yet become a widely used currency.

Others believe that Libra seems to be similar to the Hong Kong dollar and can be seen as an open economy currency that is pegged to a fixed exchange rate. In Sheng Songcheng's view, this is only a superficial phenomenon . In order to maintain this system, not only full dollar support but also sufficient foreign exchange reserves are needed. Hong Kong dollar assets have remained at around 110% of the base currency over the years. In May 2019, Hong Kong’s foreign exchange reserves were more than double the base currency.

"Hong Kong's linked exchange rate system has withstood several times of crisis tests. From the operational mechanism, it has benefited from the flexibility of Hong Kong's commodity price adjustment, the stability of the banking industry, the prudent government financial management and the sufficient foreign exchange reserves." Sheng Songcheng said that with these conditions It is also necessary for the Hong Kong Monetary Authority to continuously intervene in the market and give market confidence. If the Libra application environment does not have these economic and financial foundations, systems and control measures, it is very doubtful whether the Libra value can be maintained stable and resist speculative shocks.

What's more, in recent years, cryptocurrencies such as Bitcoin have become the main tools for illegal transactions such as money laundering and drugs because of their anonymity and decentralization. Criminals can use this to avoid regulatory agencies, and regulators cannot track the source and destination of funds through traditional capital transaction records, which makes traditional regulatory methods fail. This is the main reason for the strict supervision in China before, and it is also another layer of concern for Libra.

Global currency trend is irreversible

After Bitcoin and Libra, will there be another one? In the eyes of industry experts, digital cryptocurrency may represent a trend, and in the future, more global digital currencies may continue to emerge.

“Libra will not be short-lived.” Tang Jianwei, deputy general manager of the Bank of Communications Financial Research Center believes that although facing some challenges, its development trend of representing digital currency may even develop into a strong currency with super-sovereignty and become a reform of the global monetary system. A feasible solution. Even if Libra is supervised and stopped, it does not mean that it has failed. In the future, there will be other institutions or organizations that continue to try this way. The introduction of super-sovereign digital currency has become an irreversible trend.

Zhou Xiaochuan also said that in the future, there may be a more internationalized, globalized currency, a strong currency that causes the major currency to exchange relations with it. This thing is not necessarily Libra, but from the trend of recent years, there will be many institutions and people trying to establish a currency that is more conducive to globalization.

If a stronger, global currency is established, Zhou Xiaochuan believes that there will be a problem of strong currencies eroding weak currencies. He said that the current strong currency is the US dollar, and the strong currency eroding weak currency is the process by which the US dollar erodes other currencies. In the future, retail shopping and asset transactions can be directly used in US dollars, which will also lead to capital flows. Capital flows depend not only on investment opportunities, spreads, but also on the situation of finding a sense of security from a weak currency country to a strong currency country, especially when there is a crisis or fluctuation.

Zhou Xiaochuan said that in the past, the global dollarization process was the erosion of the US dollar against the weak currency countries. From the point of view of the weak currency countries, because the macroeconomic regulation is not good and the inflation is too high, it is easy to appear dollarization. The most typical of these is Zimbabwe. Zimbabwe has abolished the local currency and finally used the US dollar and other currencies.

Zhou Xiaochuan reminded that it is necessary to plan ahead and make the RMB a strong currency.

Source: Economic Daily WeChat public number (ID: jjrbwx)

Reporter: Chen Guojing

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