Editor's Note: This article comes fromOrange Book (ID: chengpishu)Editor's Note: This article comes from

Orange Book (ID: chengpishu)

Orange Book (ID: chengpishu)

, by John Paul Koning, published with permission.

• Last week, according to Reuters in Berlin, the U.S. dollar accounted for 50% of the Libra basket of currencies, excluding the yuan.

• From the beginning, Libra abandoned the conventional play, using existing units of account such as the dollar, yen, pound and euro to express its monetary value. In other words, Libra's global network will use its own custom Libra currency as the "base language."

• Now we know what this basket of currencies might look like:

• no renminbi

• 50 U.S. dollars

• 18% Euro

14% Japanese Yen

11% GBP

7% Singapore Dollar

Interestingly, Libra is not the world's first private unit of account. Back in the 1960s and 1970s, several financial institutions came up with their own custom currency units. I learned this strange and interesting fact from a very readable paper by two economists, Joseph Aschheim and YS Park.

From the paper, we can know that the first private artificial currency unit was issued by the Credit Bank of Luxembourg, called EUA ("European Unit of Account"). EUA was originally designed in 1961 to anchor the price of 0.88867 grams of pure gold, and soon EUA was used by Portuguese oil company SACOR to issue bonds. Over the next two decades, according to the paper's authors, about 60 or so bond issues relied on EUAs as their monetary unit.

Between 1968 and 1971, the US Treasury stopped using gold to redeem dollars. The post-World War II fixed-money system came to an end when the Smithsonian Accord, a temporary aid attempt to re-peg all currencies to the dollar, collapsed in 1973. To help people cope with sudden currency fluctuations, several new private monetary units have been added to the EUAs of Credit Banque Luxembourg.

Rothschild International Investment Bank began operations in 1973, Eurco, the European currency synthesis unit. The Eurco is made up of nine currencies issued by members of the European Community, including the Deutsche Mark, French Franc and Danish Krone. According to the paper's authors, Rothschild developed Eurco to "evoke investor confidence in long-term bonds," but as of 1976, Eurcos had issued only three bonds.

In 1974, Hambros Bank established the Arab Currency Related Unit (Arcru). Arcru consists of twelve Arabic currencies and is designed to attract Arab investors with ample oil profits. The following year, Crédit Lyonnais created a combined unit of ten European and non-European currencies, calling it the International Financial Unit (or IFU). This is a broader unit of account than the Arcru and Eurco, and the relative weights of the constituent currencies in the IFU are determined based on each country's share of international trade.

In 1974, Barclays Bank also officially joined the combined currency game. Barclays Bank issued a monetary unit called the BcUnit, which consisted of five currencies: the U.S. dollar, British pound, Deutsche mark, French franc and Swiss franc. The authors point out that while Arcru, IFU and Eurco are primarily used for bond issuance, the B-Unit is designed for international payments.

This makes BcUnit directly the predecessor of Libra.

However, looking back today, none of the private currency units in the list below exist. Would anyone want to pay with BcUnit now? Certainly not. I think this speaks to the market demand for this artificial currency unit. Businesses and consumers don't really like using them.

If private man-made monetary units fail, will government-made monetary units succeed?

Take, for example, the International Monetary Fund's (IMF) Special Drawing Rights (SDR) basket: the SDR has been in existence since 1970, nearly fifty years old. If there is a need for international payments using a common artificial unit of account, then commercial banks will surely eventually meet this need by implementing SDR-denominated payment systems. In fact, the paper's authors speculated about this possibility in this 1976 paper.

Here's an excerpt worth reading in full:

International banks may soon be willing to accept SDR-denominated deposits, as there is already potential demand for SDR funds, as evidenced by the recent SDR bonds issued by Swiss Al, Swedbank and EDF.

This process is actually already underway. In July 1975, Kaiser Ullman Bank in Geneva (subsidiary of the London company) announced that it would henceforth accept demand and time deposits denominated in SDRs. These SDR deposits are readily convertible to any SDR-related currency rate. Similarly, in New York in August 1975, Chase Bank developed a series of banking infrastructure around SDR, including loans, deposits and futures transactions.

As this process spreads, and more and more international transactions are denominated in SDRs, banks may begin to allow direct transfers between SDR accounts, within themselves, and between banks. As a result, SDR may go directly from a pure unit of account (an international "quasi-currency") to a means of payment (that is, a full-fledged international currency).

Likewise, looking back today, how many other banks would let you open an SDR-denominated bank account and make SDR payments? I have no idea. Perhaps the IMF's SDR was never well designed, or Barclays was too small to drive B-Unit adoption - but a more likely scenario is that the SDR, BcUnit and other private currencies mentioned in the author's paper Units are a dead end in monetary history. On this same path, Libra may have made a big mistake.

What are the reasons why man-made currency baskets have not been successful? I already explored this issue in my first article on Libra. I'll paraphrase my arguments below to save you the time of having to click back to that article.

Let's imagine that in another parallel world, Facebook has introduced a rule: only after learning Facebook's original private language "Facebook", users are allowed to join the Facebook platform and chat with other users socially. All use in English, French, Chinese and all other languages ​​is prohibited on the Facebook platform.

In this parallel world, all Facebook users can understand each other because everyone is fluent in the same language - "Facebook". "Understanding" others is a particularly important thing. But the problem is, almost none of us will be the first Facebook users. Who wants to work hard to learn a new language? At least I don't want to.

In the real world, the Facebook platform has long resisted using methods like "Facebookspeak." On the contrary, Facebook supports a very large number of local languages: Arabic, Chinese, English, Hindi and so on. Of course, one downside of this approach is that we have no way of knowing what Facebook users in other countries are saying, but at least users are freed from the barrier of learning a new language and grammar. Because of this straightforward design choice, the Facebook platform has thrived.

Adopting the Libra unit of account is equivalent to forcing users to learn Facebook's new currency. While we will all use the same monetary unit in Libra's global network, this approach ignores the cost to all of us as people learn new monetary models. From a very young age, we all know how to "talk money". We communicate in local currency units. As a Canadian, the loonie has always been my means of describing prices to those around me, remembering values, and doing cost-benefit calculations. Facebook wants to force us all to learn a new currency language, one based on Libra — but doing so creates a huge barrier to adoption of the currency language itself.

So let me repeat it again: No matter how sophisticated the technology for designing "Facebook" (or Libra) is, artificial languages ​​and artificial currency units are dead ends. They are utopian and not friendly to people. (Okay, I may have described this idea better in the original post, so please go ahead and check it out.)

Having said that, I've been slowly warming up to Libra over the past few months. Of the millions of blockchain projects that have popped up over the past decade, Libra is close to the Fedcoin vision I originally outlined on my 2014 blog. First, Libra's currency will be stable (unlike Bitcoin) thanks to a reliable and powerful issuer; at the same time, because it is distributed, the Libra network will also be more resilient. And, since Libra is a token, not an account, it should be relatively open for everyone to use. At the same time, David Marcus, the architect behind Libra, has the right understanding of financial privacy, and he has also made the right voice (of course, whether his intentions are true, it is difficult to say).

I think (and I could be wrong) that consumers increasingly want more financial privacy. Unfortunately, governments around the world gravitate toward a post-9/11 mindset that sees privacy as a pervasive threat. Facebook may be one of the only organizations with significant financial resources to voice consumer demand for more privacy in a way that regulators can't ignore.

Making Facebook a champion of financial privacy risks being a tenuous victory. It would be too bad if Libra (and the financial privacy it promised to bring to mainstream consumers) failed to gain widespread adoption due to a fundamental design flaw that would force us all to adopt the same language as Facebook. "Similar new currency.

If the right thing to do is not "artificial currency baskets", what should Facebook do? I think most consumers who do cross-border transactions want to be able to use their national currency all the time, only at "buy now" or "send now" moments (i.e. spending as soon as the purchase is complete, or transferring funds to a friend) We are willing to leave the shadow of our own currency. Asking users to pre-store some strange foreign currency, whether it is SDR, B-Unit or Libra, this requirement is very difficult to complete.

To remain user-friendly, Libra needs to design its network to allow free circulation of tokens denominated in national currencies (USD, CNY, GBP, IDR). Then it also needs to devise a cheap, transparent and easy way for those tokens to move from person to person. That's what PayPal does, and it's what Transferwise, Visa, and MasterCard are doing. None of these platforms created their own currency units, inventing a bunch of weird currencies called PayPalios, TransferWise Unit, or Visa-oos. These platforms allow users to stay in the system of the national currency, ensuring sufficient security until the final "send immediately" moment.

So, putting aside the criticism of Libra's decision to use artificial currency units, what do I think of the form of a basket of combined currencies?

I don't know exactly what process David Marcus and Facebook will go through to generate a basket of combined currencies. Potential Libra users might want to know in advance how the basket's currency mix will update over time. After all, if users' wealth is to remain on the platform, they will wonder how to prevent Facebook from suddenly rewriting the combination and ratio of currencies in the basket to benefit the network at the expense of users' wealth?

An important rule that everyone wants to know is what economic threshold Libra will use to "filter" or "add" various currencies. For example, if the Korean won starts to become a popular international currency, at what point will Libra decide to include the Korean won in the basket? If it decides to include it, will Libra issue another currency to make way for the won or keep it?

The components of the current Libra are definitely very strange, and they did not disclose what process the architects will use to populate the Libra currency basket. For example, I'm not aware of any selection process or rules that determine that the Singapore dollar constitutes 7% of the so-called "global currency". Don't get me wrong, I like Singapore a lot, however, Singapore does not account for 7% of world trade, nor does it account for 7% of world population, nor does it account for 7% of any global trade - so, how the hell does the 7% figure come out of?

Also, why does the euro only account for 18% of Libra's currency basket, while the US dollar exclusively occupies 50%? The EU has twice the population of the US and accounts for a much larger share of exports. And, where is the RMB? Choose to give up for political reasons?