Facebook currency, Libra can be converted into super sovereign currency?

Guide

On the afternoon of June 18th, Beijing time, the Libra white paper was published on its official website. What is Libra? What can Libra do? What can Libra do? What is the future of Libra?

Summary

What is Libra? Libra is linked to a basket of bank deposits and short-term government bonds, which is a stable certificate of the asset anchor model. This also confirms our view in the series of special reports on the truth and illusion of stability: the currency anchor is the main mode of the current stable certificate, but the asset support is single, and the future may evolve into a multi-asset mortgage and a credit-like certificate. Even the internal anchor mode.

What can Libra do? In addition to the usual monetary functions of value scale, trading medium, value storage and payment methods, Libra is also able to create credit. In addition, for Facebook, Libra will serve as an economic incentive for its huge ecology, which will help increase the viscosity of the ecology and further expansion.

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What can Libra do? It is not a sovereign currency, it cannot be a tool of monetary policy; it cannot obtain the income of the coinage tax; it cannot become a super-sovereign currency; it cannot defeat the hegemony of the dollar; it cannot lead the process of non-stateization of the currency; it cannot decouple the sovereign currency.

Outlook: The future of Libra. Monetary funds have huge profit margins; a more robust Facebook ecosystem; Libra transactions become mainstream in the replacement of USDT transactions; it is of great significance to raise public awareness of BTC; it has a greater impact on countries with lower government credit. Risk warning: development is less than expected

table of Contents

1 What is Libra?

1.1 Libra credit enhancement method: giant blessing, anchoring multiple assets

1.2 Libra: Stable Pass 2.0

2 What can Libra do?

2.1 Value scale

2.2 Trading medium

2.3 Value storage

2.4 means of payment

2.5 Creating credit

2.6 Embedding Facebook Ecology

3 What can Libra do?

3.1 is not a sovereign currency and cannot be a monetary policy tool

3.2 Unable to obtain the income from the coinage tax

3.3 Cannot be a super sovereign currency

3.4 Unable to defeat dollar hegemony

3.5 Non-nationalization process that cannot lead the currency

3.6 Unable to decouple sovereign currency

4 Outlook: The future of Libra

text

On the afternoon of June 18th, Beijing time, the Libra white paper was published on its official website.

1 What is Libra?

Libra is linked to a basket of bank deposits and short-term government bonds, which is a stable certificate of the asset anchor model. This also confirms our view in the series of special reports on the truth and illusion of stability : the currency anchor is the main mode of the current stable certificate, but the asset support is single, and the future may evolve into a multi-asset mortgage and a credit-like certificate. Even the internal anchor mode.

1.1 Libra credit enhancement method: giant blessing, anchoring multiple assets

The French currency anchor is the main mode of the current stable pass, anchoring the US dollar into a “standard”. Stabilization is a type of digital certificate that anchors its value and price through a specific mechanism. There are three stable modes: the French currency anchor, the asset anchor and the internal anchor. The French currency anchor is the main mode of the current stable certificate, and it is also the type that most investors actually contact and use. Starting from the first and current stable market certificate with the highest market value, USDT, the subsequent legal currency anchor model is stable, and all are issued on the basis of US dollars. The international currency is still “hard currency” in the field of digital investment.

The development path of the legal currency anchor stability certificate is a process of continuous credit enhancement. At present, the main circulation certificate chooses to anchor the legal currency – the US dollar is issued. The reason is that on the one hand, because the US dollar and other international currencies have long been used as the currency anchor of sovereign countries and the settlement unit of international trade, they have higher recognition; on the other hand, they are stable. The credit rating of the issuing body is insufficient, and the anchoring of the international currency can enhance its letter of stability. However, the model of stabilizing the license to anchor a single asset is susceptible to various factors, and the stability is lower than the stability of the anchoring of multiple international currencies/assets.

Facebook’s endorsement of Facebook, the world’s largest social networking company, is a letter to Libra. As of March 31, 2019, Facebook's total revenue for the first quarter was $15.077 billion, and net income was $2.429 billion. Faceboo has 37,773 full-time employees, a year-on-year increase of 36%, daily active users of 1.56 billion, an increase of 8% year-on-year, and 2.38 billion monthly active users, an increase of 8%. Facebook is still in the lead in the comparison of active accounts on the global social networking platform.

Libra anchored a basket of bank deposits and short-term government bonds to increase Libra's stability. At present, the main legal currency anchor stability certificate only supports a single asset, there is a certain risk, multi-asset mortgage, debt-like certificate and even internal anchor mode is a credible evolution direction. The USDT anchored the US dollar in the early stage. After repeated crisis, the anchored assets were changed to include US dollar cash, third-party loans and accounts receivable. Libra's stable certificate anchors a variety of assets, which is beneficial to stabilize the price of the license, but also to reduce the cost of trade friction, increase the rate of return, and promote its global expansion.

1.2 Libra: Stable Pass 2.0

The legal currency anchor is suitable for the current development stage of the blockchain system. The emergence of Libra means the official birth of the asset anchor. In the later period, as the ecological scale of the blockchain expands, the legal currency anchor and asset anchor may be replaced by internal anchors. At the current stage, the ecological chain of the blockchain itself is still relatively small, and the total value of digital certificates is only 19.1 billion US dollars, which is a big gap compared with the traditional Internet. At present, the value system of the blockchain industry still relies on the traditional economy. Different customs are priced in French currency and still have strong dependence on the traditional economic system. As a kind of legal currency equivalent, the French currency anchor stability certificate can support chain trading and meet the demand of the blockchain for stable certification at the current stage. Although the anchoring assets of the old stable USDT have been extended beyond the legal currency, the emergence of Libra's stable certificate is still the official birth of the asset anchor. Later, as the blockchain economy develops to a higher stage and scale, it needs to generate its own value system to adapt to the different forms of the real economy. The legal currency anchor and asset anchor are likely to be replaced by internal anchors.

Libra is an internal anchor endorsed by the National Credit. Libra's stable pass is backed by a real asset reserve, and anyone holding Libra can get a redemption guarantee, and holders can exchange Libra for local currency at the exchange rate. The purpose of such behavior is to foster consumer trust in the new currency in order to achieve widespread coverage and use in the early days of the currency. According to this, consumers' trust in Libra's blockchain technology stems from its ability to "support the exchange of legal currency". In other words, the sovereign currency of the sovereign state is endorsing Libra. The legal currency is the internal anchor of each sovereign country. Therefore, to a certain extent, Libra is an internal anchor based on factors such as the size of users and changes in international exchange rates. This also shows with the Libra Association that “we welcome public surveys and accountability. We are committed to dialogue with regulators and policy makers. We are as interested in policy makers as they are interested in the continued stability of national currencies”.

2 What can Libra do?

In addition to the usual monetary functions of value scale, trading medium, value storage and payment methods, Libra is also able to create credit. In addition, for Facebook, Libra will serve as an economic incentive for its huge ecology, which will help increase the viscosity of the ecology and further expansion.

2.1 Value scale

The value scale is the most basic and important function of money, that is, the currency acts as a yardstick for expressing and measuring the value of all other commodities. The amount of commodity value depends on the length of socially necessary labor time it contains. Here, socially necessary labor time is the internal scale of commodity value. However, under the conditions of commodity economy, the amount of commodity value cannot be directly expressed by labor time, but can only be expressed indirectly through the currency represented by value. It can be seen that the function of monetary execution value scale is actually the external value scale of commodity value. In the ecosystem built by Facebook and its partners, Libra performs the value-scale function by defining the price of the goods and services contained in the ecosystem. For example, authors who create paid articles can use Libra for pricing.

2.2 Trading medium

Money acts as a medium in commodity trading. Money as a medium of exchange makes direct bartering an indirect exchange by currency. This indirect exchange is called commodity circulation. When the currency fulfills the function of the trading medium, it has several characteristics: it must be the real currency, not the currency of the concept, that is, the one-handed payment and the first-hand delivery; the currency as the means of circulation can be exchanged with the currency symbol. Instead, banknotes and credit money are generated. Libra stabilizes the card and anchors a variety of “low volatility” assets to ensure that its value remains stable, making it easy to use as a trading medium by Facebook and other partners.

2.3 Value storage

Value storage means that money can be preserved as an independent representative of value and social wealth. Money as a means of storage can spontaneously regulate the amount of money in circulation. When the amount of money needed in circulation decreases, the excess currency exits circulation; when the amount of money needed in circulation increases, some of the stored currency enters circulation. According to Libra's generation mechanism, when a user deposits a certain amount of legal currency, a corresponding amount of Libra is generated to enter the market for circulation or storage. Otherwise, the user uses Libra to exchange legal currency, and the corresponding amount of Libra is also destroyed. That is to say, Libra's liquidity in the market can be adjusted by the storage/exchange of legal currency.

2.4 means of payment

The means of payment arises as a result of the sale of goods on credit. In credit sales, money is used to pay off debts. Later, it was used to pay rent, interest, wages or tax payments. With the development of the commodity economy, the function of money as a means of payment has gradually expanded beyond the circulation of commodities. As the world's largest social media platform, Facebook currently has at least 2.3 billion active users, which provides favorable conditions for Libra's landing applications. Massive users and a wide range of application scenarios provide a broad imagination for the use of stable certificates for payment activities. A direct example is a mutual transfer between Facebook users.

2.5 Creating credit

Libra became the creator of credit. In traditional finance, currency issuers, commercial banks, and enterprises/residents have jointly built credit through changes in the “balance sheet”. In Libra's operating mechanism, users can deposit Lido to issue a proper amount of stable certificates by depositing legal currency. Other users can use existing Libra to exchange a certain amount of legal currency assets, some of which may continue to flow back to the Libra system. Complete the simple process of credit creation.

2.6 Embedding Facebook Ecology

Passing cards have two significant characteristics:

The first major feature is "currency embedding." Blockchain-based projects are generally trying to create a peer-to-peer financial structure that attempts to reorganize society into a series of decentralized networks that interact with people, and most of these projects introduce a pass.

The second major feature is the externality of the user's scale. As the size of the platform's users grows, finding a counterparty will be easier for everyone, long-term contracts will be more hopeful, and products and services will be sold faster. Therefore, when more people use the pass, the utility of using the pass itself will also be improved. In line with the concept of the Matthew effect and the flow of the Internet in the Internet economy, the externality of the user scale is also crucial in the certificate.

After the introduction of Libra in the Facebook ecosystem, you can also enjoy the benefits of the certificate. First, Libra helps to reduce the extra cost of currency inconsistency in global transactions. Second, the introduction of this unit of account eases the risk of asset-liability mismatch caused by different accounting units; again, Libra can be used as a Incentives to promote the stability and functionality of Facebook's ecology; Finally, for Facebook, Libra will serve as an economic incentive for its vast ecology, which will help increase the viscosity of the ecology and further expansion.

3 What can Libra do?

3.1 is not a sovereign currency and cannot be a monetary policy tool

At present, there is no recognized definition of monetary sovereignty. With reference to the definition of sovereignty, territory and other sovereignty, monetary sovereignty can be understood as a country's autonomy in determining monetary regulation and financial reform and development. The issue of the ownership of currency distribution rights has long been debated for a long time. The main points of view include the mainstream currency country statutory theory and the currency non-state theory represented by the Austrian school. For the faithful believers of Hayek, the currency distribution rights should be attributed to Privately, money should be automatically generated in a competitive market. The state monopoly of currency issuance will inevitably lead to inflation and economic volatility, which in turn harms the public interest. Although the concept of this theory has been widely recognized, in the real world, the automatic adjustment of the market can bring out the clear, but the society can not bear the pain of the long-term adjustment process, as Keynes said, "In the long run, we are all dead. ".

Obviously, Libra is not a sovereign currency. Sovereign currency relies on the credit issue of sovereign countries. Facebook undoubtedly does not have sovereign government credit. The assets behind Libra are low-volatility sovereign currency assets, so it is based on the credit of other sovereign currencies, and then superimposed on Facebook. The company's corporate credit, combined with blockchain technology, has become a stable certification that anchors sovereign currency assets.

Libra cannot be a macro monetary policy tool. Bernanke once quoted Friedman's "helicopter money" strategy. In contrast, Libra is also based on the assets of French currency. It does not have strong sovereign credit support and legal solvency. Like the sovereign currency such as the US dollar, it has become a monetary policy tool, and the Libra Association cannot become a "central bank" in the global digital economy.

3.2 Unable to obtain the income from the coinage tax

The coinage tax, also known as the currency tax, refers to the organization that issues the currency or the government of the country. After enjoying the face value of the currency issue minus the issuance cost, it exchanges the benefits of the actual economic resources and draws the specific income generated from the issuance of the currency. This part is monopolized by the currency issuer to enjoy the "general currency face value exceeds the production cost", which is defined as the coinage tax.

As far as Libra is concerned, Libra is unable to obtain the income from the seigniorage tax because Libra is supported by the reserve assets of 1:1 and therefore does not have the above-mentioned benefits of “the common currency face value exceeds the production cost”.

3.3 Cannot be a super sovereign currency

The claim of super-sovereign currency has been around for a long time, but the practice of global super-sovereign currency has been bumpy. After the Second World War, the "Keynesian Plan" fell in the competition with the "White Plan". The plan to create the super-sovereign currency "Unita" in the "White Party Plan" was not implemented. After that, although it also appeared Attempts to regional super-sovereign currencies such as the euro, but there are still problems in actual operation. The application of SDR (Special Drawing) is limited to the income and expenditure of members of the International Monetary Fund (IMF). Settlement, small and ineffective.

It can be seen that the realization of super-sovereign currency is not achieved overnight. Under the circumstances that the economic development level of the countries in the world is uneven and the interests of different levels of development are prominent, the establishment of super-sovereign currency will undoubtedly face many obstacles in the distribution of politics and interests, currency stability, currency issuance, etc. Technical barriers need to go through a rather lengthy process.

Libra is difficult to develop into a super sovereign currency in a short time. If Libra's goal is to become a super-sovereign currency, it also faces the problems mentioned above, and Facebook itself does not have sovereign credit. Its Libra is similar in implementation mechanism to SDR, with multiple low-volatility Bank deposits and government bonds are issued as collateral.

3.4 Unable to defeat dollar hegemony

We believe that the world needs a global digital native currency that combines the best of the world's best currencies: stability, low inflation, global acceptance and interchangeability. Libra currency is designed to help meet these global needs in an effort to expand the impact of money on people around the world.

– Quoted from the Libra White Paper

The characteristics of these best currencies, the dollar has been achieved without exception. Global acceptance and interchangeability need not be said. Since World War II, the international monetary system has always been dominated by the US dollar; in terms of stability, the US dollar is more stable than gold and many other countries' sovereign currencies, so we see that Libra has excluded gold from its reserve assets; since the 1990s, the dollar's inflation rate has remained below 6%, and the dollar's inflation rate has been below 4% in the past 10 years.

The characteristics of Libra's best currency are not from Libra itself, but on the policies of central banks that rely on other sovereign currencies.

Rome was not built in a day, and the establishment of dollar hegemony was not a one-off event. The early US dollar was rarely circulated abroad, and there was no status at all. Even in the United States’ own import and export trade, there was no dollar. On the eve of World War I, the United States was already the world’s largest economy. In 1912, the United States Commodity exports have even surpassed the UK, but in the international currency ranking, the French franc, the German mark, the Swiss franc, the Dutch guilder, the Italian lira, the Belgian franc and the Austrian shilling are all ahead of the US dollar. This situation did not change until the development of the US dollar acceptance bill business in 1915, when World War I disrupted the European trade credit market, US banks began to enter foreign markets, the pound was also in violent fluctuations, and the US dollar was in international trade. become more and more important. Since then, the dollar has experienced depreciation and rebound in the Great Depression, which caused the US dollar to be interrupted internationally until the US dollar began to dominate after World War II and maintained its dominant position through a series of international currency negotiations.

Defeat the dollar hegemony? It’s hard to go to heaven. Under the current dollar-dominated international monetary system, if Libra wants to achieve stability, low inflation, global acceptance and interchangeability, it is expected that Libra will hold a large amount of dollar assets. The emergence of Libra may be able to partially replace the role of the dollar in financial payments, but "beating the hegemony of the dollar" is by no means so simple.

3.5 Non-nationalization process that cannot lead the currency

In the 1940s, many Britons believed that in the near future, the whole world would become a big family, speak the same language, abide by the same laws, and worship the same God. In the Internet age, everyone shouted the global village, but in the end It is the sovereign state that strongly dominates the development of the world.

Although globalization has greatly promoted the development of non-state actors, including multinational corporations, from David Mitrani to contemporary idealists and even believe that nation states will be replaced or dying, but multinational companies have not Being able to replace sovereign states, some large multinational corporations have in fact become tools for power and foreign policy in big powers. In the early 1960s, the average life expectancy of companies in the S&P 500 index was more than 60 years. Since then, large companies have become “surviving” in the index for a shorter period of time. In the long run, multinational companies are extremely rare compared to sovereign countries. "Short life."

The alliance of multinational corporations cannot lead the process of non-stateization of the currency. Multinational corporations as non-state actors and their alliance of multinational corporations are expected to dominate the non-stateization process of the currency. If so, then the United States can be regarded as a combination of the S&P 500 index companies. The natural survival of the fittest, and any one or more multinational companies have difficulty to have such a strong sovereign state credit.

3.6 Unable to decouple sovereign currency

The Libra Association plays Libra's “last seller” role in the Libra ecosystem, but behind the “last buyer” of the Libra Association, there is the “final buyer” of sovereign currency assets, the sovereign state.

Why is Libra unable to decouple from sovereign currency? Libra does not have legal solvency and does not have independent long-term credit support. Once Libra is decoupled from sovereign currency, its value will not be discussed.

4 Outlook: The future of Libra

(1) The monetary fund has huge profit potential

Libra users will not receive returns from reserve assets. The reserve will invest in low-risk assets that will generate interest over time. The proceeds from interest will be used first to pay for the association's operating expenses, including: investing in ecosystem growth and development, funding NGOs, and funding engineering research. After paying these fees, the remaining portion of the proceeds will be used to pay the initial investor's dividend to Libra's early investors who invest in the token. Because reserve assets are low-risk and low-yielding, early investors will only get a return if the network is successful and the reserve size is greatly increased.

In terms of capital preservation, the association will only invest in stable government-issued bonds that are unlikely to default and are unlikely to have high inflation. In addition, by selecting multiple governments and not just one government, the association will further reduce the potential impact of investment activities, thereby diversifying reserves. In terms of liquidity, the association's plan is to rely on these short-term securities issued by the government and traded in liquid markets to guarantee liquidity. The daily trading volume of these liquid markets is usually tens of billions or even hundreds of billions. This allows the size of the reserve to be easily adjusted as the number of Libras increases or decreases.

– Quoted from the Libra White Paper

This shows that Facebook has set up a money fund, but unlike the traditional money fund, the fund's share is Libra, and because the user does not get a return on the mortgage reserve assets, the fund's profit margin is huge.

According to the announcement of the fund's net asset value announced by Tianhong Fund, Tianhong Yubao was 1.13 trillion yuan at the end of 2018. In the first quarter of 2019, Facebook's monthly active users was about 2.38 billion. Conservative assumptions Libra's reserve assets reached 10,000. Billion, according to the 1.5% yield, the annual income is as high as 15 billion US dollars.

(2) A more robust Facebook ecosystem

Facebook has a large enough user base, Libra and the introduction of the pass-through economy system will bring more possibilities to the Facebook ecosystem, including users, application scenarios and partners, etc., Facebook's entire ecosystem will be more robust .

(3) Libra trading becomes mainstream for replacing USDT transactions

After many times of turmoil and being repeatedly questioned, USDT is still firmly based on the stable market value of the industry. With Libra, the same sovereign currency asset mortgage, and the stronger stability of the credit compared to the USDT, the Libra transaction pair It may be the alternative to the USDT trading pair to become mainstream.

(4) It is of great significance to raise public awareness of BTC

At this stage, the public's perception of BTC and blockchain is still relatively limited, and Facebook's huge number of users can significantly increase public awareness of BTC and blockchain.

(5) A greater impact on countries with lower government credit

Earlier we have seen people choose BTC as a means of payment and value storage when serious inflation occurs in sovereign currencies. There are still some sovereign countries with low credits. After the emergence of Libra, the Libra may have a big impact on these countries after the public in these countries can reach Libra.

Reference materials:

1. Barry Essengreen, "The Privilege of arrogance – the rise and fall of the dollar and the future of money", CITIC Publishing House, 2011

2. David Marsh, The Story of the Euro: The Years of a New Global Currency, Mechanical Industry Press, 2011

3. Edward Chancelle, "The History of Financial Speculation", Mechanical Industry Press, 2013

4, Song Shuangjie, Wu Zhenyu, "Stable Pass: Originated from Demand, Rising in the Wind – One of the Truth and the Magic of Stabilizing the Pass", Tong Zheng Tong Research Institute, 2018

5. Song Shuangjie, Wu Zhenyu, "The Anchor of Stability and Passage: History, Present and Future – The Truth and the Magic of Stability and Passage", Tongxuetong Research Institute, 2018

6. Song Shuangjie, Wu Zhenyu, "The Status Quo of Stability and Certification: Anchoring, Confidence and Adjustment–The Four Series of Zhen and Magic Series of Stabilizing the Pass", Tongxuetong Research Institute, 2018

7. Song Shuangjie, Wu Zhenyu, "Stable and Proof of the Future: Based on the Industry, Step by Step – The Real and Fantasy Five of Stabilizing the Pass", Tongxuetong Research Institute, 2018

Note:

For some reasons, some of the nouns in this article are not very accurate, such as: pass, digital pass, digital currency, currency, token, Crowdsale, etc. If you have any questions, you can call us to discuss.

This article is original for the General Research Institute (ID: TokenRoll). Unauthorized reproduction is prohibited. Reprint, please reply to the background keywords [reproduced]

Produced by Tong Zheng Tong Research Institute

Text: Song Shuangjie, CFA; Tian Zhiyuan; Wang Xingang

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