Editor's Note: This article comes fromEditor's Note: This article comes fromMeng Yan's blockchain thinking
(ID: gh_20172e07d48d), author: Meng Yan, forwarded with authorization.
The general practice of digital currency projects is to issue a white paper first, and then issue digital currency in about half a year to a year. The release of the white paper means that the Libra project has entered the countdown. Judging from the information that has been revealed so far, the Facebook digital currency is created based on the blockchain and will be officially released in the first quarter of 2020. According to the blockchain media THE BLOCK report [1], the plan will establish a digital economy composed of 100 cooperative alliance nodes. At present, Visa, Mastercard, Uber, Paypal and other companies have signed contracts and confirmed to become founding nodes. In time, this economy will include the combined 2.7 billion global users of Facebook and WhatsApp.
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Figure 1. Facebook digital currency partners reported by The Block (picture from The Block)
The launch of Facebook’s digital currency is not isolated and has been preceded by a series of events, including:
In July 2018, ICE, the actual owner of the New York Stock Exchange, cooperated with Microsoft, Boston Consulting Group and Starbucks to establish Bakkt, an encrypted digital asset service agency.
In February 2019, JPMorgan Chase released the digital currency JP Morgan Coin for inter-agency clearing
In March 2019, IBM announced the cross-border payment blockchain World Wire
On June 12, 2019, Visa announced the cross-border payment blockchain network B2B Connect
The above series of events show that the mainstream economy of the United States is embracing blockchain and digital currency step by step. But the impact of these things pales in comparison to the upcoming Facebook digital currency. Facebook's digital currency will be the most important event in the field of encrypted digital currency after the launch of the Bitcoin mainnet in 2009, marking the upgrade of non-state-issued digital currency applications from 1.0 to 2.0. Blockchain, digital currency and token economy will thus enter the main battlefield of the Internet and financial technology in one step, and become the protagonist of the next stage of digital economy.
Due to well-known reasons, China's related industries are unable to respond to such a major event, which is very worrying. It must be realized that if China fails to actively participate in this new stage of the digital economic revolution, not only will it be completely passive in the new competition, but the advantages it has gained in the fields of the Internet and financial technology may also be lost.
According to media reports, people already have a certain understanding of Facebook’s issuance of digital currency, but they may not be able to see the meaning clearly. Therefore, we will introduce and analyze this incident in this article, mainly focusing on the following four questions:
First, what is Facebook's motivation for launching an encrypted digital initiative?
Second, what is the strategic goal and significance of Facebook's digital currency?
Third, what are the consequences of Facebook's digital currency?
This article will start from the facts that have been reported so far, as well as the development law of encrypted digital currency itself, and analyze the above issues along a reasonable logical path. We hope these views will inspire more research and discussion on Facebook's digital currency and encrypted digital economy. Limited by our own knowledge, our views are inevitably biased and fallacious, and we are willing to accept criticism and advice from all walks of life with an open mind.
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1. Facebook’s immediate motivation for launching a digital currency
Facebook’s motivation for launching a digital currency plan is relatively pure. It is a direct response from Facebook’s decision-makers to the 2018 privacy leak scandal.
The scandal broke out in March 2018. At that time, an insider disclosed to the American media that Facebook violated the user agreement and provided the private data of more than 50 million users to a big data analysis company, which may have affected public opinion and political voting. Due to the unique political climate in the United States under Trump, this incident has been repeatedly amplified, and the facts about Facebook's various violations of user privacy data have been exposed one after another. The arrogant Zuckerberg and his main assistant Sandberg were dragged to the U.S. Congress hearings in turn. A large number of resigned employees turned against each other. Facebook. In this case, Facebook's prospects are clouded for the first time since its creation in 2004.
A trip to Europe shortly thereafter deepened Zuckerberg's worries about Facebook's future. In May 2018, the EU-wide General Data Protection Regulation (GDPR) came into force. At the same time, Zuckerberg attended two hearings and accepted questions in the European Parliament. The first of these was relatively mild, while the second was murderous. Subsequently, Zuckerberg was almost arrested because he refused to go to the UK for questioning, which made him clearly realize that in the United States, especially in Europe, Facebook's current business model will face fundamental threats.
Simply put, Facebook's business model is to occupy user data for free or at low cost, accurately describe user characteristics and preferences through high-level big data analysis, accurately push advertisements, and earn advertising fees.
This business model was created by Facebook, and it is also made to the extreme. Facebook has invested a lot of resources and brought together the world's best technical elites to push real-time big data analysis and computational advertising to an unrivaled level, which has greatly promoted the development of artificial intelligence technology. However, this model has a fatal problem, it requires the right to analyze user data. When the new rules for user data protection in Europe and the United States began to be gradually established, the ownership and control of user data were clearly assigned to the user, and Facebook could only analyze the data after the user's explicit authorization and payment of consideration. In fact, this means The cost and risk of its original business model will be greatly increased, and it may even become unprofitable in the future.
Facebook needs to find a new business model.
The specific decision-making process has not been known to the outside world, but Zuckerberg made this decision, on the one hand, due to the situation, and on the other hand, it did highlight his personality and courage. In all fairness, digital currency is not a natural choice for Facebook, let alone the safest and most reasonable choice. In 2018, Facebook's net profit was as high as 25 billion U.S. dollars, the number of users exceeded 2.6 billion, and its market value exceeded 500 billion U.S. dollars. With the world's largest user group and endless cash, it stands on the commanding heights of the industry. If you want to be safe, Facebook can compete with other giants in e-commerce, cloud computing and even search. Even if you want to do financial technology, there are still a lot of traditional and mature models to choose from. It can be said that Zuckerberg finally chose the blockchain encrypted digital currency as the main direction, which is extraordinary. It has surpassed the simple meaning of "finding a way", and must have a higher strategic goal.
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2. Strategic goals of Facebook digital currency
We do not expect Facebook to publicly announce the full strategy of its digital currency initiative. However, if we fully understand the nature of the encrypted digital currency that anchors the fiat currency, and deduce it logically, we can conclude that after Facebook issues digital currency, it may achieve three-level strategic goals in the future, namely:
The first layer is to obtain a new profit model.
The second layer becomes the central bank of the global digital economy.
The third layer is to build Facebook's digital economy empire.
2.1 Obtain a new profit model
Libra can enable Facebook to enter the huge payment business without violating user privacy, and cut into the financial technology field from the highest point, earning huge revenue and profits.
Internet payment is the foundation of financial technology, with huge scale and huge profits. With less than 600 million users, China's Internet third-party payment created a transaction volume of approximately US$28 trillion in 2018. If Facebook can effectively convert users to Libra, after several years of development, it is not a fantasy to carry a transaction volume of 50 to 80 trillion US dollars a year. This means that Libra only needs to charge two-thousandths of the handling fee, and the fee income alone is higher than Facebook's entire revenue, and all of this does not require excessive acquisition of user data, and can be encrypted under the condition of end-to-end encryption. Finish.
Cross-border payment is also a big cake. The total size of the global cross-border payment business is currently 125 trillion US dollars, which is very profitable. People who often travel abroad know that the handling fee for cash exchange at foreign retail windows is often 3 to 7 percent. If the unspent foreign exchange is exchanged back to the domestic currency when leaving, there may be a price difference of up to tens of percent between the buying price and the selling price of the cash. Through Libra's unified digital currency system, Facebook can reduce users' transaction costs in this area by an order of magnitude, kill the traditional foreign exchange business, and it can also obtain high profits.
In addition, another ability of Libra is to combine with Facebook's inherent business, while avoiding excessive collection of user data, it can inject new life into the Internet advertising business. Specifically, Facebook can construct a token incentive system based on Libra in its social network, games and other businesses. It does not need to over-analyze user data, but can use Libra rewards to cooperate with a secondary market for tokens. Without knowing the specific preferences of users, it encourages users to click on advertisements and guides users to interact in depth. Further, this token incentive system can also turn every user into its advertising sales or distribution channel. For example, a user gets a discount card by interacting with an ad, but he doesn't need it himself. In the traditional Internet advertising model, things end here. However, under the token incentive mode, users can transfer and sell this discount card through their own channels or the secondary market, and obtain corresponding commission rewards. In this way, these users actually become the distribution channel of Facebook's advertising business, and Facebook relies purely on the market mechanism to raise the advertising business to a new level without infringing on user privacy.
Of course, we can also imagine that Facebook cooperates with banks, funds, securities companies, exchanges, insurance companies and other traditional financial institutions to create various financial products in its own system and become the financial service portal for users. Intermediaries earn high intermediary fees.
Therefore, Libra has the ability to create a new profit model for Facebook, not only to get rid of the threat of subversion of the existing profit model, but also to bring Facebook to a new level in the Internet field.
However, although the above-mentioned profit models may generate tens of billions or even hundreds of billions of dollars in profits, they are still only a starting point for the capabilities of digital currency, which is better than traditional user points, but if you just stop here, Facebook is nothing more than a more profitable Internet company. In our opinion, this is by no means the highest goal of Facebook's Libra release.
2.2 Digital economy central bank
It is said that Libra will anchor a basket of currencies composed of multinational legal currencies, which sounds similar to the Special Drawing Rights (SDR) of the International Monetary Fund, and also similar to the RMB after 2005. And this means that Libra is a so-called "stable currency" in the field of encrypted digital currency and token economy, which must control price fluctuations within a certain range, and does not try to provide incentives through token appreciation. Instead, Libra will pay dividends to holders, bringing the system closer to a bank.
We believe that Facebook hopes to upgrade to a super bank with both minting and credit rights in the digital economy world through the Libra project.
The key here is the right to issue currency, or coinage for short. According to Professor Benjamin Cohen (Benjamin Cohen), the essence of minting power is the power to avoid adjusting costs by delaying and passing on to others [2]. To put it in a more popular way, it is the power to delay and transfer debts after debts are owed. For example, an entity that has the right to mint coins recognizes that the currency it issues is its own liabilities, and will also indicate the mortgage assets corresponding to these liabilities on the statement, but it has no obligation to repay the debt to the currency holder. Although the central bank needs to clearly indicate in its own balance sheet how much gold, foreign exchange, treasury bills and other assets are behind the currency as collateral and support, but when an ordinary person takes banknotes to the central bank to ask for exchange into gold, foreign exchange or treasury bills , the central bank will not accept it. The central bank is perhaps the only institution in today's legal system with such a privilege.
So can Facebook have such a privilege through Libra? To answer this question, we need to understand the implementation mechanism of encrypted digital stable currency.
First of all, it should be explained that stable currency is actually a false concept, and there is no such thing as stable currency in the world. The so-called stable currency is actually just a convenient term for communication. In the field of encrypted digital currency, it usually refers to a digital currency whose price is biting a certain external target. That is to say, the stability of a stablecoin does not mean its purchasing power is stable, but its relative to the stability of the price of the fiat currency to which it is anchored.
At present, there are roughly three ideas for realizing stable currency.
The first is fiat currency debt collateral. In layman's terms, it is to mortgage a certain amount of legal currency to the depository institution, and then issue the same amount of digital currency on the chain. Every digital currency is backed by an equivalent legal currency mortgage. Once the digital currency holder requests to convert back to legal currency, the issuer must immediately cash in the same amount. In this sense, stablecoins are simply fiat debt tokens issued on the blockchain. In the case of a 100% cash reserve, this model itself neither expands nor shrinks the issuance of legal currency, but only moves part of the legal currency to the blockchain, and the issuer does not really have the right to mint coins.
The second is digital asset debt collateral. This is a unique model on the blockchain, which is to mortgage the decentralized digital assets (Bitcoin, Ethereum, etc.) on the blockchain into a smart contract to issue a digital currency that is stable relative to legal tender. The representative of this model is the MakerDAO project. This method can be regarded as having "partial minting rights". On the one hand, the smart contract can choose the type of coinage collateral assets, which is the unique power of the central bank. On the other hand, the digital currency issued in this way is cashable. Users can cash these digital currencies into the collateral assets behind them through smart contracts at any time, which is different from the central bank's currency that is not cashed.
The third is the algorithmic central bank, which simulates the algorithm that the central bank adjusts the money supply according to the CPI or a basket of currency prices, and flexibly expands and contracts the digital currency supply by sensing the supply and demand relationship in the market, trying to achieve price stability. This is a way to fully own the right to mint coins, completely simulating the operation of the central bank. However, since there is no injection of government authority, this model is only superficial, and there are no successful examples so far.
How will Libra implement it?
We believe that in the short term, Libra will be issued in the form of legal currency debt collateral, and in the long run, Libra will adopt a hybrid model to achieve the de facto control of the minting rights.
According to information disclosed by relevant media reports, Libra will not be anchored to a legal currency, but to anchor a basket of currencies. That is to say, in the early stage of its development, Libra will reserve a certain amount of cash according to the ratio determined by the currency basket, and issue digital currency as collateral. The way Facebook is capable enough to do it.
Since Libra is anchored to a currency basket and can be cashed into multiple legal currencies, in order to achieve this, Facebook must find business partners around the world to facilitate users to freely convert Libra into corresponding legal currencies. To this end, Facebook will share minting rights with these partners.
The really interesting thing happened after several years of stable operation of Libra. At that time, a prosperous digital economic ecology such as e-commerce, games, services, and finance will be established within the Facebook network. A large number of products and services will be directly denominated in Libra and accept Libra payments. Global Facebook users will gradually build direct trust in Libra's native currency. That is to say, people trust the value of Libra, no longer because it can be easily converted into legal currency, no longer because it is supported by any third-party assets, but only because it is Libra, just because it is in the entire Facebook social network and countless There are more than two billion people in the secondary market who are willing to take the initiative to use their assets, cash, products and services to accept Libra.
At this point, it means that a large part, or even the vast majority, of the Libra in circulation will only circulate within the Facebook digital economy ecosystem and will not be cashed at all. Facebook will still provide a fulfillment promise, but it does not actually need to undertake the fulfillment obligation, which gives it certain rights to issue Libra by purchasing or trading various assets. And this is the de facto coinage right.
This also partly explains why Libra is not directly anchored to the US dollar, but to anchor a currency basket. If Libra is anchored to the U.S. dollar, then in the future when Libra has the right to coin, Facebook will actually become another U.S. central bank besides the Federal Reserve. This matter has too much impact both politically and conceptually, and must be avoided. Anchoring a currency basket is actually creating an independent currency, that is to say, Facebook will be the central bank, but an independent central bank of the digital economy, not a second US dollar central bank.
2.3 Digital Economy Empire
People may ask, what if Facebook becomes a digital economy central bank? We believe that Facebook will establish its own financial syndicate system through 100 ally nodes, and build a powerful digital economic empire on this basis.
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In the medium and long term, Facebook's digital currency will have a series of complex and far-reaching consequences. A full analysis of these consequences is well beyond the scope of this article, and here we focus on four of them.
3.1 Encrypted digital currency has become an irreversible trend
After the launch of the Bitcoin network on January 3, 2009, encrypted digital currency emerged as a brand new thing in the history of human economics. After ten years of development, encrypted digital currency has achieved a certain scale and achieved considerable development. But at the same time, due to its impact on the traditional monetary theory and system, and due to the immaturity of this new thing itself, encrypted digital currency has also suffered huge controversy and pressure, and there are various forces hoping to kill it in its infancy. , erase it from history and reality. It should be said that before the issuance of Facebook digital currency, the possibility of reversing the historical trend still exists. After that, after more than 100 institutions and 2.7 billion global users were involved in this historical process, this possibility has completely disappeared, and no one or organization can stop the development of encrypted digital currency.
Of course, for the encrypted digital currency industry, the joining of Internet giants is itself a turning point. Prior to this, this movement was basically dominated by a small group of idealists, who put forward a series of slogans such as financial democratization, open finance, token economy, borderless finance, and decentralized economy, hoping to give The global populace brings a different choice. When a giant like Facebook joins in, the movement will be upgraded from an idealistic 1.0 to a commercial 2.0. Idealism will always be part of this movement, but the power of capital and commerce will gradually play a leading role. Although helpless, this is a historical inevitability.
The good news is that this process will once again spark massive innovation and wealth creation, giving birth to a new batch of digital economy giants and ushering in another era of passionate entrepreneurship.
3.2 Atomization of currency competition
One of the original goals of Bitcoin when it was created was to ensure that everyone has full control over their digital assets. To this end, Satoshi Nakamoto made the Bitcoin network into a peer-to-peer, freely accessible anonymous payment network, and also made permeability and non-exclusivity the native characteristics of the blockchain payment network. As a result, the digital currency on the blockchain can directly penetrate into every scene in daily life, leading to atomic competition among different currencies.
There are many definitions of blockchain, but from the perspective of discussing Facebook's digital currency, it should be regarded as a super-sovereign, open payment and financial network on the Internet.
In layman's terms, the payment network is a network that "travels money", and the financial network not only cashes out money, but also bills, securities and other financial data. Today's mainstream payment and financial networks are centralized. They are two separate networks from the Internet we are usually familiar with, and are generally jointly constructed by the central bank and banking financial institutions. China's second-generation CNAPS (China Modern Payment System) and CNFN (China National Financial Network) are the world's most advanced national payment systems and financial core networks built on centralized infrastructure. We need to go through this network system to move even a penny between bank accounts through bank counter services, ATMs, online banking, and Internet third-party payments.
The reason why traditional sovereign currencies can obtain a monopoly position in sovereign countries is that, in addition to legal and ideological norms, the country can ensure that only the payment network of the sovereign currency can legally exist within its borders, while other sovereign currencies Payment network rejection. For example, the reason why renminbi cannot be circulated in Japan is not because the Japanese police supervise all businesses all day long and use batons to force them to refuse renminbi payments, but because the Japanese government can easily prohibit renminbi payments and the laying of financial networks in Japan , that is, exclusion management.
Why can the government easily carry out exclusion management? It is because the structure of the centralized core financial network is very complex, and the scale and construction cost are also very large. If you want to lay it in other countries, the cost is high and the movement is large, and you must obtain government approval.
But the blockchain has subverted all of this. What is the essence of blockchain? It is to put the payment and financial core network directly on the Internet, without the need for licenses, dedicated lines, and a lot of infrastructure construction. Anyone who wants to use only a mobile phone can freely connect to this payment network at an extremely low, close to zero cost, and use digital currency to complete payment transactions.
In fact, in the past ten years, Bitcoin has fully demonstrated the characteristics and power of a super-sovereign payment network. The blockchain 2.0 technology represented by Ethereum shows that the blockchain has sufficient potential to develop into a super-sovereign financial infrastructure, not just a payment network. Any user can create, store, pay and trade digital assets in the blockchain without the approval and authorization of anyone, and without a license, and participate in various complex financial and trade activities such as investment and financing. Unless the government completely cuts off the Internet, or continuously checks everyone's Internet terminal equipment, there is no way to ban this behavior.
For today's sovereign countries, if the government can effectively manage the payment financial network within its borders, then within the country, the official legal currency can dominate the world. Transactions and competition between different sovereign currencies can only take place on the border, that is, in the foreign exchange market. However, when the blockchain, a super-sovereign global payment and financial network, penetrates directly into the nerve endings of the economy, the traditional currency border will no longer exist, and multiple currencies will coexist in the same scene.
The Facebook digital currency blockchain will have 2.7 billion mobile terminals, and each of its mobile apps will become a "light node" or "wallet" of the Libra payment network, and any user can connect to the payment network at any time . Libra is expected to become the world's first and currently the largest cross-border, super-sovereign digital currency payment network. In this case, the ability of the government to restrict and manage the payment network will be greatly weakened, and it is almost impossible to achieve rejection of this payment network. In other words, this payment network can penetrate into any sovereign currency zone at any time, coexist with it, and compete with it.
After Facebook, there will be some new transnational and super-sovereign digital currencies. In the future, every user will need to choose one of several currencies for daily payment, and currency competition will be carried out directly at the atomic transaction level, which will have a great impact on the existing domestic currency monopoly situation.
3.3 Alliances of multinational corporations lead the process of currency denationalization
The digital currency dominated by Facebook and its business allies is a typical denationalized currency. The emergence of this situation fully confirmed Hayek's conception and judgment on currency development in the 1970s[3].
Libra is a non-nationalized digital currency that operates transnationally, led by a super Internet giant and supported by 100 partners. It is expected that the minting rights, governance rights and income of this digital currency will be distributed among these 100 "nodes" according to a set of rules. Therefore, compared to Bitcoin and Ethereum, it is centralized, but compared to existing sovereign currencies, it is decentralized. In the final analysis, it may still represent the interests of a small group, but it has more democratization and sharing spirit in the specific governance model, and it has a certain transcendence compared with the existing sovereign currency. This must be admitted.
Since the emergence of currency, it has always had dual functions of economy and politics. On the one hand, it is a medium of exchange, store of value, and unit of account, and on the other hand, it is a symbol of the political power of the state. As Mundell said, "a strong country has a strong currency". A country's ability to force its citizens to use and only use officially issued currency reflects the regime's ability to govern internally. Correspondingly, if a sovereign currency can be widely used abroad, it will also be regarded as a sign of the country's powerful power overflowing and gaining the world. Therefore, the competition between currencies is given a strong political significance.
However, with the advancement of globalization, the scale of international trade has expanded rapidly. In order to reduce transaction costs, people need a unified world currency, so they have to choose the sovereign currency of the most powerful country as the international trade and reserve currency, that is, the world currency. In the past, the silver coin of Athens, the gold coin of Byzantium, the florin of Florence, the Dutch guilder, the Spanish peso, and the pound sterling have all played the role of international currency, and today that role undoubtedly belongs to the dollar.
However, using a sovereign currency as the world currency brings many problems. On the one hand, the issuing country of this world currency does enjoy the privilege of collecting seigniorage from the whole world, which itself is a huge unfairness. But on the other hand, this privilege is also backlash against the issuing country of the world currency. The famous Triffin paradox points out that since all countries need to reserve the world currency, the issuing country of the world currency is obliged to provide additional money supply to other countries, which will lead to a long-term trade deficit of the country, and eventually the economy will suffer weakened, thereby endangering the status of the world currency. This is actually what the United States is facing now.
The ideal world currency should be a single supranational currency, which would be the most economically efficient, least politically controversial, and lowest transaction cost. Mundell once said that the optimal amount of money is like the optimal amount of God—"it is an odd number, preferably less than three." If more than 200 sovereign countries and regions around the world can sit down and agree on a plan to form a unified world currency, that would of course be the best. However, in the current situation of political fragmentation, great power competition, and clash of civilizations, the above assumptions are tantamount to fantasy.
There is reason to believe that Facebook is just the first crab tester, the first rebel among the Roman legions. Hundreds of multinational economic organizations will use the Facebook digital currency as a platform to carry out a series of innovative attempts in incentives, governance, and legal compliance. Once it completes its firepower test, other multinational corporations will surely flock to it. Technology companies such as Google, Microsoft, Amazon, and IBM, as well as some self-breaking financial institutions on Wall Street, will all invest in it. The alliance of multinational companies will lead the development process of non-nationalized digital currency. The alliance between sovereign states and enterprises that has been formed over the past 100 years will be forced to restructure. Capitalist globalization will therefore enter a new stage.
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3.4 Opening a new battlefield for the digital economy big country game
Facebook certainly does not live in a lawless world, and governments, including the United States, will not happily abandon the sovereign currency system they have built with difficulty. If Libra is going to fight against all sovereign currencies in all countries as soon as it comes up, there will be no chance. Zuckerberg must consider how to find a foothold for Libra in the gaps of the existing system. In our view, Libra is likely to align itself with the U.S. dollar in the process.
As the current world currency, the US dollar's hegemony cannot be challenged for a long time. But its dominance is mainly reflected in international trade, investment and foreign exchange reserves. Since the U.S. dollar payment network can also be easily rejected by sovereign countries, the U.S. dollar cannot enter the daily payment and inter-business trade of residents of various countries, especially in the life of the digital economy.
However, what the dollar cannot do, Libra can. As mentioned earlier, users in the Facebook digital economy can completely construct their own new digital economic life around Libra, in which they create, work, shop, travel, consume, buy insurance, and so on.
More importantly, Libra is a "civilian" currency, which does not have the strong political color of the US dollar. At the same time, Libra's distributed governance structure and "benefit sharing" incentive mechanism to a certain extent will balance the interests of all parties better than the US dollar, and will be easier to accept.
Conversely, for Libra, it will be positioned in the digital economy for a long time, and it will not enter the field of international physical trade and large investment to challenge the US dollar. On the contrary, without the support and promotion of the United States, its development is bound to encounter many obstacles. Therefore, it also has an incentive to enter into some form of alignment with the dollar.
Of course, in some specific scenarios, Libra and the US dollar are competitive, but they are more complementary. In the case of mutual needs between the two parties, the connection between the US dollar and Libra is a high probability event.
We judge that the current U.S. government and the Federal Reserve may not have formed an opinion on Libra’s super-sovereign digital currency, but their systems and habits will allow projects like Libra to go a long way. The vast majority of the first announced Libra nodes are American companies and entities, and they are unlikely to resist the pressure and temptation to align with the US dollar. Therefore, it is almost inevitable that Libra will become the de facto interest representative of the US dollar system in the global digital economic space in some way. Technically speaking, this is not such a difficult task, but in terms of results, it is of great significance and will enable the United States to gain a major first-mover advantage in the competition of the digital economy.
To sum up, although digital currency started with the liberal ideals of cypherpunks, the power of capital and the state will definitely extend to the digital economic space, which does not depend on the will of any idealists. Libra is an important event in this process.
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Enlightenment to us
So far, our analysis of Libra is coming to an end. But we can't help thinking, what does this matter mean to China? What should we learn from it?
Here we talk about our views.
First, this means that China must participate in this new competition in the digital economy and cannot escape.
We understand that for China, digital currency is an option with huge risks and opportunities. However, the launch of Libra indicates to us that such a battle for a new digital economy continent is about to begin. We cannot afford to be absent.
We understand people's concerns. In the financial field, due to the huge advantages of the US dollar and the US financial industry, and due to the inherent problems of China's financial industry itself, digital currency may be used to break through China's financial firewall, resulting in asset outflows, accumulation of financial risks, and even wealth looting. The risk is very clear.
Therefore, in China now, many people want to bury their heads in the sand, as if this matter does not exist. Some people think that they can keep the enemy out of the country through administrative and technical means, and are willing to lag behind the general trend of the world. Some people are lucky about this, hoping that foreign governments will act collectively to block digital currencies and reverse the historical trend. For example, a few days ago, the Indian Congress moved to severely punish those involved in bitcoin transactions. Many people rejoiced, thinking that governments all over the world would learn from India. I don’t know if they had similar illusions when India scrapped money three years ago.
If one observes the current development of digital currency objectively, without prejudice and delusion, and understands the urgent innovation enthusiasm for digital currency and token economy in various industries at home and abroad, anyone will come to a clear conclusion that digital currency is inevitable , will profoundly change the digital economy and the global technology, finance, capital and economic structure. This process may have twists and turns, but it is unstoppable. The risks mentioned above always exist. If we participate, we still have the opportunity to find a way to restrain ourselves. If we don’t participate, we will only be beaten passively.
Second, enhance the sense of crisis and improve the level of understanding of the new round of digital economic competition.
After more than 20 years of hard work, China's digital economy has exceeded 30 trillion yuan, and it has also achieved considerable leading advantages in mobile payment, e-commerce and other fields. On the one hand, this is a real achievement, and on the other hand, it has indeed led to the mentality of being arrogant and complacent, and superior to others. We should realize that technological innovation in this field is advancing rapidly, and if one is not careful and fails to keep up with one step, it may turn from leading to lagging behind.
Third, enhance confidence, enlarge the pattern, and dare to compete.
China has the conditions to participate in this competition and gain a place. China has a number of powerful Internet companies, a large group of young and creative engineers, and a huge real economy. If digital currency is used as a new tool, it can rapidly develop overseas business, sell Chinese products, and occupy the international market. The market, effectively supporting the "Digital Belt and Road" strategy, can completely occupy an advantageous position in the new global digital economic competition.
China has the conditions to participate in this competition and gain a place. China has a number of powerful Internet companies, a large group of young and creative engineers, and a huge real economy. If digital currency is used as a new tool, it can rapidly develop overseas business, sell Chinese products, and occupy the international market. The market, effectively supporting the "Digital Belt and Road" strategy, can completely occupy an advantageous position in the new global digital economic competition.
But to play to our strengths, we must enlarge the pattern. Our current thinking is to move the renminbi into the digital economy space. But in the face of Libra, a non-national digital economy native currency, this style of play is doomed to suffer. As mentioned earlier, although Libra has the shadow of the United States behind it, it has absorbed some ideas of free encrypted digital currencies such as Bitcoin after all, trying to establish a multi-center alliance organization in form, and a set of benefit sharing and power co-governance. , The mechanism of mutual checks and balances reflects a certain transcendence and pattern. Regardless of the degree of sincerity behind it, compared with the traditional centralized currency that represents national power, its affinity is not the same. If China wants to compete with such a digital currency in the international market, it may not be possible to forcefully push the digital renminbi. It must stand at the height of a community with a shared future for mankind and come up with a larger, more selfless, more open, more international, and more Share the spirit of the program to come. We believe that if we can compete with such a mind, there is no reason for the Chinese not to take a place in the new round of digital economic competition.
Finally, let’s face it, let go of academic and technical discussions of cryptocurrencies.
Since the release of JPMorgan Coin in February this year, the embrace of digital currency by mainstream institutions in the United States has progressed rapidly, greatly exceeding the judgment of relevant institutions and experts. The entire Chinese financial technology industry seems to be unprepared for this, and it seems a little slow. This is directly related to the suppression of discussions on related topics for a period of time.
We understand that the topic of digital currency is extremely easy to be used for illegal financial activities, so it is a practical need to maintain financial stability to some extent. However, we believe that opening up relevant discussions in the academic and technical fields is not only necessary, but also does not conflict with the general goal of maintaining financial stability. The key to the global digital economic competition that has come is financial thinking, incentive models, governance mechanisms, regulatory compliance levels, and experience in international operations. These things cannot be achieved without extensive exchanges and full discussions. here.
Therefore, we recommend that academic and technical discussions on encrypted digital currency be released within a certain controllable range, and relevant conferences and exchange activities be allowed to be held, so as to rapidly improve the level of understanding of this topic among relevant Chinese industry professionals.
This article has been personally reviewed by the famous economist Professor Zhu Jiaming, and he has provided a lot of valuable opinions. I would like to express my heartfelt thanks.
References:
[1] The Block, Facebook’s cryptocurrency partners revealed,
https://www.theblockcrypto.com
References:
[2] Benjamin Cohen, "Monetary Power", CITIC Publishing Group, 2017.10
