On the afternoon of June 18th, Beijing time, Facebook, with 2.7 billion users, released the Libra white paper on its official website. Libra is threatening. Many people regard it as a future global currency model that challenges monetary sovereignty and a challenge to the state’s monopoly on coinage. Others, such as BM, the founder of eos, believe that Libra sees little innovation. So what is Libra? What can Libra do? What can't Libra do? Can Libra really become a new global currency?
What is Libra? The Libra token is linked to a basket of bank deposits and short-term government bonds, and is a stable token with an asset anchor model. This also confirms our point of view in the "Truth and Illusion of Stable Tokens" series of special reports: the fiat currency anchor is the main mode of the current stable token, but the asset support is single, and it may evolve into multi-asset mortgage and debt-like tokens in the future and even inner anchor patterns.
What can Libra do? In addition to conventional currency functions such as value scale, transaction medium, value storage and payment means, Libra can also create credit. In addition, for Facebook, Libra will serve as an economic incentive carrier for its huge ecology, which will help increase the stickiness of the ecology and further expansion capabilities.
What can't Libra do? It is not a sovereign currency and cannot become a monetary policy tool; it cannot obtain seigniorage benefits; it cannot become a super-sovereign currency; it cannot defeat the hegemony of the US dollar; it cannot dominate the denationalization process of currencies; it cannot decouple sovereign currencies.
Looking Ahead: The Future of Libra. Monetary funds have huge profit margins; a stronger Facebook ecosystem; Libra trading pairs have become the mainstream instead of USDT trading pairs; it is of great significance to enhance the public's awareness of BTC; it has a greater impact on countries with low government credit.
Risk warning: development is less than expected
On June 18, 2019, Facebook announced its cryptocurrency plan Libra. Although the project's internal code name GlobalCoin has been weakened, its white paper still reveals its ambition: "Libra's mission is to build a simple, borderless currency and financial infrastructure that serves billions of people."
The Internet and digital technology in this era have become an infrastructure like running water, connecting people from different corners of the world. At the same time, 1.7 billion adults remain isolated from the financial system and unable to enjoy the financial services provided by traditional banks. The United Nations proposed the concept of inclusive finance in 2005, aiming to provide financial services for small and micro enterprises, farmers, and low-income groups at a lower cost. This is the background of the birth of the Libra project and the issues it hopes to solve.
(source: Libra Whitepaper)
Libra's vision is supported by three pillars:
Cryptocurrency backed by fiat assets
Secure, scalable and reliable blockchain infrastructure
A governance mechanism led by the Libra Association composed of different companies, organizations, and institutions
Among the many ways to deal with the shortcomings of the international monetary system, there are the following representative views: First, some scholars, represented by Professor McKinnon, have emphasized that the dollar standard itself has greater flexibility, and believe that the future international monetary system Reform should work towards improving US monetary and exchange rate policies.
The second is the super-sovereign reserve currency plan proposed by Zhou Xiaochuan, governor of the People's Bank of China in 2009. He believes that SDR has the characteristics and potential of a super-sovereign reserve currency. In the future, the role of SDR should be fully utilized and the scope of use of SDR should be broadened.
The third is the reserve currency diversification plan, which was widely concerned when the euro was born, and was later evaluated by many scholars as a more realistic path for the reform of the international monetary system. The fourth is some other "non-mainstream" views, such as returning to the gold standard.
It should be noted that, in essence, the reconstruction and reserve of the dollar standard, and the currency diversification plan still belong to the scope of the improved version of the sovereign international monetary system, which can only become a short-term salvation, and it is unrealistic to return to the gold standard. Really address the fragility of the international monetary system.
Therefore, in order to creatively reform and improve the current international monetary system fundamentally, constructing a super-sovereign currency becomes a more attractive solution between ideal and reality. By creating a super-sovereign international monetary system that is decoupled from sovereign states, can effectively coordinate the interests of all parties, and achieve a win-win situation, the orderly supply and management of global liquidity can be achieved.
The exploration of modern super-sovereign currency can be traced back to the 1940s. In the discussion about what kind of international monetary system to establish after World War II, economist Keynes envisioned the establishment of a global central bank - the Union for International Settlements, creating and issuing a new Bancor, a super-sovereign reserve currency, can provide sufficient payment and settlement media required according to global economic and trade development. However, with the support of the strong comprehensive strength of the United States, the Bretton Woods system based on the "White Plan" was finally established, and the opportunity to fundamentally solve the problem of global liquidity shortage and reform the international monetary system was missed. Thereafter, in the process of dealing with the US dollar crisis in the 1960s, in order to supplement the shortage of international reserve currencies, the International Monetary Fund (IMF) adopted the Special Drawing Rights (SDR) program, which began to be officially issued in 1970. In 1974, the IMF officially announced that the SDR would be decoupled from gold and use a basket of currencies (16 types) as the valuation standard; in 1980, the IMF announced that it would simplify the SDR basket of currencies into five currencies, namely the U.S. dollar, Mark, and Japanese yen. , franc and pound sterling. Afterwards, with the birth of the euro, the mark and the franc withdrew from the SDR basket, and the SDR currency basket became four, namely the US dollar, the euro, the Japanese yen and the British pound. In fact, apart from the euro, which is derived from the European unit of account (EUA) and the European currency unit (ECU), and has the characteristics of a regional super-sovereign currency, only the SDR has the greatest potential for a global "super-sovereign currency". Due to the limitations of the distribution mechanism and the scope of use, its role has not been fully utilized so far, and it has remained in the form of a unit of account. It should be said that SDR does not meet the definition of "freely usable" currency in the "IMF Articles of Agreement": (1) widely used in international transaction payments; (2) widely traded in major exchange markets.
Looking at the underlying reasons, although the exploration of a super-sovereign currency similar to SDR has got rid of the situation that the sovereign currency is constrained by a country's internal factors, it also encounters political and economic "short boards" and constraints, such as: whether it can There is a strong global final credit support, allowing countries to use it as an international reserve asset and means of final payment; can there be a set of binding currency rules to enable countries to jointly maintain the issuance and use of super-sovereign currencies, and share Among them are responsibilities and rights; whether global investors can reduce their dependence on international currencies, and whether super-sovereign currencies can be widely accepted in application scenarios such as trade settlement and financial transactions other than reserve functions.
It should be noted that although the SDR attempt is in line with the development direction of the international monetary system, its efforts continue to encounter difficulties and challenges. The biggest problem is how to use effective currency rules to reach a consensus in the already diversified international currency structure. Promote SDR to be further "grounded" and become a "freely usable" currency, thus opening a "window" to solve the long-term and fundamental contradictions of the international monetary system. This requires continuous efforts in strengthening the role of SDR as a valuation currency and a means of settlement, establishing SDR issuance rules, improving SDR distribution methods, and broadening SDR application scenarios. As President Zhou Xiaochuan put forward in 2009, it is a practical suggestion.
One is to establish a clearing relationship between SDR and other currencies. Change the current status that SDR can only be used for international settlement between governments or international organizations, so that it can become a recognized means of payment for international trade and financial transactions. The second is to actively promote the use of SDR pricing in international trade, commodity pricing, investment and corporate bookkeeping. This is not only conducive to strengthening the role of SDR, but also can effectively reduce asset price fluctuations and related risks caused by the use of sovereign reserve currencies for denomination. The third is to actively promote the creation of SDR-valued assets and enhance their attractiveness. The fourth is to further improve the valuation and issuance methods of SDRs. The scope of the basket of currencies for SDR valuation should be expanded to include the world's major economic powers, and GDP can also be considered as one of the weighting factors.
It can be said that the transformation of technology and monetary and financial solutions in the digital age has provided a new perspective for this, which is conducive to trying the digital super-sovereign "shared currency" and "shared finance" models.
What can't Libra do?
1. It is not a sovereign currency and cannot be used as a monetary policy tool
At present, there is no generally accepted definition of monetary sovereignty. With reference to the definitions of sovereignty such as diplomacy and territory, monetary sovereignty can be understood as the autonomy of a country to determine currency regulation and financial reform and development. For a long time, there has been a long-standing debate on the ownership of the right to issue currency. The main points of view include the mainstream currency state theory and the currency non-state theory represented by the Austrian school. For Hayek’s faithful believers, the currency issue right should belong to For private individuals, currency should be automatically generated in a competitive market, and the state monopoly of currency issuance will inevitably lead to inflation and continuous economic fluctuations, which will endanger the public interest. Although the idea of this theory has been widely recognized, in the real world, the automatic adjustment of the market can bring about clearing, but the society cannot 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 currencies rely on the credit issuance of sovereign countries. Facebook undoubtedly does not have the credit of sovereign governments. The assets behind Libra are low-volatility sovereign currency assets, so it itself 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 pass 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 legal currency assets and does not have strong sovereign credit support and legal solvency. Sovereign currencies such as the U.S. dollar have also become monetary policy tools, and the Libra Association cannot become a "central bank" in the global digital economy.
2. Unable to obtain seigniorage benefits
Seigniorage, also known as currency tax, refers to the currency-issuing organization or the government of the country, which enjoys the face value of the currency issuance minus the issuance cost in exchange for the benefits of actual economic resources, and captures the specific income generated by the currency issuance. This part is monopolized by the currency issuer to enjoy the benefits of "the face value of the common currency exceeding the production cost", which is defined as seigniorage.
As far as Libra is concerned, since Libra is backed by reserve assets 1:1, it does not have the benefits brought about by the above-mentioned "common currency face value exceeding production costs", so the issuance of Libra cannot obtain seigniorage benefits.
3. Cannot become a super-sovereign currency
The idea of a super-sovereign currency has been around for a long time, but the practice of a global super-sovereign currency has a bumpy road. After World War II, the "Keynes Plan" fell behind in the competition with the "White Plan", and the plan to create a super-sovereign currency "Unita" in the "White Plan" was ultimately not implemented. The euro and other regional super-sovereign currencies are attempted, but there are still problems in actual operation, and the application of SDR (Special Drawing Right) is also limited to the payments among IMF (International Monetary Fund, International Monetary Fund) members Settlement, which is small and lacks clout.
It can be seen that the realization of a super-sovereign currency is not achieved overnight. Under the circumstances that the economic development levels of countries around the world are uneven, and the conflicts of interest between economies with different development levels are prominent, the establishment of a super-sovereign currency will undoubtedly face many political and interest distribution resistance, currency stability, currency issuance, etc. Obstacles at the technical level need to go through a rather long process.
It is difficult for Libra to develop into a super-sovereign currency in a short period of time. If Libra's goal is to become a super-sovereign currency, it will also face the above-mentioned problems, and Facebook itself does not have sovereign credit. Bank deposits and government bonds are issued as collateral.
4. Unable to defeat dollar hegemony
We believe the world needs a global, digitally native currency that combines the characteristics of the world's best currencies: stability, low inflation, universal global acceptance, and fungibility. The Libra currency is designed to help meet these global needs, with a view to extending the reach of money to people around the world.
——Quoted from the Libra white paper
These characteristics of the best currencies, the dollar has achieved without exception. Global acceptance and interchangeability needless to say, 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 the sovereign currencies of many other countries, so we see that Libra has excluded gold from its reserve assets; since the 1990s, the inflation rate of the U.S. dollar has remained below 6%, and the inflation rate of the U.S. dollar has been below 4% in the past 10 years.
The characteristics of Libra's best currency do not come from Libra itself, but rely on the policies of the central banks of other sovereign currencies.
Rome was not built in a day, and the establishment of dollar hegemony did not happen overnight. The early U.S. dollar was rarely circulated abroad and had no status at all. Even in the import and export trade of the United States itself, there was no U.S. dollar. On the eve of World War I, the United States had long been the largest economy in the world. Merchandise exports have even surpassed that of the United Kingdom, yet in the ranking of international currencies, the French franc, Deutsche mark, Swiss franc, Dutch guilder, Italian lira, Belgian franc and Austrian shilling are all ranked ahead of the US dollar. This situation did not change until 1915 with the development of the U.S. dollar acceptance business. At that time, World War I disrupted the European trade credit market, American banks began to enter foreign markets, the pound was also in violent fluctuations, and the U.S. dollar was in international trade. become more and more important. Since then, the dollar experienced depreciation and rebound in the Great Depression, which abruptly interrupted the internationalization process of the dollar. It was not until after World War II that the dollar began to dominate, and maintained its dominant position through a series of subsequent international currency negotiations.
Defeat dollar hegemony? It is as difficult as climbing to the sky. Under the current international monetary system dominated by the US dollar, if Libra wants to achieve stability, low inflation, global acceptance and interchangeability, it can be expected that Libra will hold a large number of US dollar assets. The emergence of Libra may be able to partially replace the role of the U.S. dollar in financial payments and other aspects, but "defeating the hegemony of the U.S. dollar" is by no means so simple.
5. Inability to dominate the denationalization process of the currency
In the 1840s, many British people believed that in the near future, the whole world would become one big family, speaking the same language, obeying the same laws, and worshiping the same God; 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 Mitranny to contemporary idealists even believe that nation-states will be replaced or go extinct, multinational corporations have not Instead of sovereign states, some large multinational corporations have essentially become tools of power and foreign policy of great powers. In the early 1960s, the average life expectancy of companies in the S&P 500 Index was more than 60 years. Since then, the time for large companies to "survive" in the index has become shorter and shorter. In the long run, compared with sovereign countries, multinational companies are extremely "Short-lived".
A coalition of multinational corporations cannot dominate the denationalization of currencies. As non-state actors, multinational corporations and their alliances are expected to lead the process of denationalization of currencies. If this is the case, then the United States can be regarded as a combination of companies in the S&P 500 index. This combination has Natural survival of the fittest, and it is difficult for any one or more multinational companies to have such a strong sovereign national credit.
6. Unable to depeg sovereign currencies
The Libra Association plays the role of Libra's "buyer of last resort" in the Libra ecosystem. However, behind the "buyer of last resort" of the Libra Association, there is also the "buyer of last resort" of sovereign currency assets, that is, sovereign countries.
Why can't Libra be decoupled from sovereign currencies? Libra does not have legal solvency, and there is no independent long-term credit support. Once Libra is decoupled from the sovereign currency, its value will be impossible to talk about.
Could Libra Become a New Global Currency?
1. Compared with the current model in which the central bank monopolizes the right to mint coins, the competitive coin issuance model is actually a regression. Take the United States as an example. After the War of Independence, Alexander Hamilton, the first Secretary of the Treasury of the United States, proposed to Congress the establishment of a national bank, the First Bank of the United States. Opponents also believed that it would cause a monopoly of banking business. , so neither the First Bank nor the later Second Bank was the de facto central bank, and after the Second Bank was closed, there was a period of completely free finance for more than 70 years, and the financial system that was left to its own devices was in 1873, 1884, 1890 In 1893 and 1907, a large number of bank failures were caused, triggering a financial crisis, and countless people's wealth was wiped out. That's why the United States established the Federal Reserve in 1913.
2. The issuance of currency by the central bank is by no means a single bank act. Take the Bank of England and the Federal Reserve as examples. The basis for their currency issuance is the taxation of their own government, which is the most liquid and reliable taxation. It is by no means comparable to ordinary digital assets. At the same time, according to Milton Friedman ( Milton Friedman's point of view, the growth rate of currency issuance needs to be based on the M2 of the economy where it is located. If a competitive currency issuance model is adopted, it is impossible to accurately measure M2.
3. It is still difficult for Libra to achieve free exchange and free trade in the world. From the information disclosed so far, Libra is a freely convertible currency that complies with the regulatory requirements of the Federal Reserve, keeps a close eye on a basket of currencies, and is based on the Mundell-Fleming-Dornbusch Model (MFD Model for short). ), if a country uses Libra as a currency, it will lose the ability of the country to use monetary policy to regulate the economy. In fact, for small countries, the free exchange of currency and the control of monetary policy by others may lead to disaster. This is the case of the 1997 Southeast Asian economic crisis .
To sum up, it is impossible for Libra to replace the traditional currency. Its real stage should be the payment link. Since Facebook has 2.7 billion users, huge traffic and rich big data, if it can fully divert , can create huge profits, the premise is first that it must comply with the regulatory requirements of the country where it is located. At present, it seems that it is more like a financial product supported by the Federal Reserve; second, it must have the most difficult and most difficult payment channel Cost the last mile.
References:
References:
1. Tokentong Research Institute, "Facebook Issuing Currency, Can Libra Be Refined into a Super-Sovereign Currency?" "
2. Liu Shangqi, "Digital Sovereign Country Issues Its Cryptocurrency", ThoughtWorks Insights
3. Yao Yudong and Yang Tao, "eSDR: Towards an Ideal Super-Sovereign Currency Innovation", IMI Financial Observation
Daniel Liu
BCL Chief Risk Control Officer: An expert in macroeconomics and financial technology. He has long been committed to the research on the combination of computer science and economics. He has published papers in related fields in many domestic core economics journals. Technology has extremely unique insights.
Founded in Hong Kong, BCL, the chairman unit of the Daojiuhui Blockchain Professional Committee, has been attaching great importance to financial technology innovation for three years, such as the self-developed digital asset service platform eGloble APP, which is committed to building a digital online financial service platform and building a global financial service platform. The company's vision is to bring new products and innovative financial service experience to enterprises and individuals through advanced big data, artificial intelligence, data analysis and other technologies by virtue of the international capital market and the advantages of attracting global funds.
www.blockchainlab.hk
Blockchain Technology Professional Committee
The blockchain philosophy is consensus, co-creation, and symbiosis, and the blockchain token (Token) is the core of the entire blockchain economy and philosophy. Token is an encrypted digital certificate of negotiable rights and interests. The essence of the token is an incentive medium for large-scale unfamiliar social relationship collaboration. These incentive counterparts (that is, Token assets) can include: use rights, property rights, creditor's rights, point privileges, and other rights and interests of the real economy.
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