Rereading the Libra White Paper Released by Facebook: Stabilizing Coins

Libra's white paper shows that the Libra currency is based on the “Libra blockchain”. Libra needs to be accepted in many places and should be readily available to those who want to use it. In other words, people need to believe that they can use Libra and believe that their value will remain relatively stable over time. Unlike most cryptocurrencies, Libra is fully supported by real asset reserves. For each newly created Libra cryptocurrency, there is a basket of bank deposits and short-term government bonds of relative value in the Libra Reserve to build trust in its intrinsic value. The purpose of the Libra reserve is to maintain the value of the Libra cryptocurrency stable and ensure that it does not fluctuate over time.

Bitcoin developer Jameson Lopp said: Libra is a universal cryptocurrency protocol, and the first asset will be a stable currency .

Libra also mentioned in the white paper that Libra currency is expected to be stable, low inflation, universally accepted and interchangeable.

Bob McElrath once wrote that “stable currency” is a synthetic asset created to create a “stable” crypto asset than the underlying asset value. He believes that the only viable stable currency is composed of simple (weighted) average assets, often referred to as "a basket of options" or simply "diversified portfolios."

The importance of stabilizing coins is highlighted. First, the currency-linked policy can make domestic trade more predictable. If the country's economy is highly dependent on exports, such as some major oil-producing countries, and linking its own currency to other countries' currencies, it will ensure that both sides of the trade do not have to worry about the exchange rate rise and fall, and a more favorable trade balance.

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Second, currency-linked policies can help countries reduce production costs and maintain low-cost exports. Basically, when the time is right, pegged exchange rates can artificially reduce these costs.

Third, it can help the country solve the problem of soaring prices. It is also called "hyperinflation." If the domestic currency exchange rate is fixed relative to a relatively stable currency in another country, such as the euro or the dollar, then this kind of peg can help the country to suppress inflation.

Recently, according to external sources, Bertrand Perez, managing director and chief operating officer of the Libra Association, publicly stated that the company is committed to launching Libra in the second half of 2020. In addition, Perez confirmed that Libra will be linked to a range of major currencies when it is launched, initially including US Dollars, Euros, Japanese Yen, British Pounds and Singapore Dollars, excluding Renminbi. Perez also said that the Libra reserve will not exceed $200 billion at most, although the association is still deciding how to determine the weight of a basket of currencies, "but the dollar should be very important and is expected to account for about half."

In this regard, Mu Changchun, director of the Digital Money Institute of the People's Bank of China, questioned the “stabilization of the currency through the reserve assets of a basket of currencies” in his public class “Technology Finance Frontier: Libra and Digital Currency Outlook”.

He said: "The so-called basket of currencies as reserve assets cannot achieve the stability of the currency. It will be affected by changes in the exchange rate between the currencies of the reserve assets, and will be like any other assets, and will be trusted and expected by the market. Impact."

He predicted that Libra's issuance in the future is likely to be determined by the association. If you want to keep the exchange rate stable, you need to control the relationship between the currency and the exchange rate between different currencies.

In addition, he mentioned that if Libra is successfully implemented as a stable currency, it means that Libra's founding association will play the role of Libra's central bank and may also evolve into a private international currency. The IMF, and in the private sector, will be more influential than the IMF.

This is where Libra is controversial. On July 17, the Financial Services Commission's (FSC) theme was "Learn about Facebook's Libra and its impact on consumers, investors and the US financial system." On the other hand, Congressman Carolyn Maloney said: "The issuance of new currency is the core function of the government and should be the responsibility of the relevant responsible agency. This is also responsible for the citizens. But to take a step back, I think it is under the supervision of the Federal Reserve and the US Securities and Exchange Commission. You should agree to a small pilot first."

US House of Representatives Alexandria Ocasio-Cortez pointed out that the value of the Libra Libra cryptocurrency reserve is determined by the company, most of which are profit driven.

Ocasio-Cortez believes that a country's currency plays the role of “public goods” (meaning non-competitive and non-exclusive products that are non-competitive and beneficial in consumption or use), rather than for profit-making companies. Profit. This also shows the potential problems of Libra's existence, which may become a stumbling block for Facebook's launch of Libra.

Source: Financial Network · Chain Finance

Author: LornaQ

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