On June 18, 2019, Facebook (hereinafter referred to as FB) published a digital currency white paper. For a time, digital currency has become a hot topic of concern and discussion, with a view on digital currency and bearish digital currency. Is digital currency a hypothetical or a real situation that is about to emerge? What is the future prospect? To answer these questions, we may wish to start with the history of money.
I. The conditions for the existence of digital currency from three currency cases
Money can be a currency because it is a general equivalent and a measure of value. When different goods or similar goods and services are exchanged between different varieties and grades, a recognized equivalent is needed to measure the value of the exchange. In the history of various commodity exchanges, people have chosen shells, stones, cloth, copper, silver, gold, etc. as general equivalents.
1. Shell, silver, etc. as currency
For example, the primitive people generally use the shell of the class as a coin, and merchants of all nationalities use this primitive coin to trade. This trade extends to China, Japan, the East Indies and the island of Mafia in East Africa. Marco Polo’s travels describe Yunnan, China. This currency is also used in the southern zone. In Africa, the use of shells is common. Everything in the hinterland of Africa is paid for with shell coins, and even white missionaries collect donations in shells.
2. Currency that is not in circulation but exists and appears at any time
The stone money of Yap Island is called the “fee”. The huge stone wheel made of a limestone, a meteorite produced by the archipelago, must be traveled hundreds of miles. This stone does not work in the place of origin. Money, while the distant tribes use it. It is very difficult to collect this kind of stone. After collecting it, put it on the raft and drag it back to Yap Island. The coin is large, thin and flat, with holes in it. It looks like a grindstone, five yards in diameter, and probably the largest currency in the world. This currency is difficult to use for daily trade. Therefore, the “fee” is always listed in front of your own home. Merchants sell goods to distant people, just look at the appearance and location of the employer’s “fee”. The “fee” that a businessman has can be spread all over the island, but it is not really possessed by this stone wheel. Local residents use this to pay taxes and fines. The local ruler simply indicates the initial letter of the local bureaucrat’s name on the “fee”. If the coin is easy to change the owner, the initial letter will be erased.
3. Liquidity creation (supply) and trade development
The official documents of the Netherlands record: During the Second World War, interesting events took place in the Dutch archipelago of the Netherlands. At that time, gold and silver were of no value to the Indonesians in the distant outposts. They have long used the shells of beautiful and beautiful seas as coins, which were brought from far away through dangerous steep mountain roads. The shell is prone to spoilage, so it needs to be replenished from time to time, but the coast where these shells can be found has been controlled by the Japanese. The lack of money will inevitably lead to deflation, and the entire region will face the collapse of the economic system. Finally, Dutch officials who ruled the area sent a bureaucrat to the Australian coast to collect the shell, but there was no result. One day later, an official at a department store in Melbourne found that the glowing shell was sold as a children’s toy. The official brought back a bag of bright shells, restoring the local economy and the prosperity of the residents.
4. Analysis and conclusion
The first case shows that as a currency, it must be visible and tangible. The items that can be calculated and valued can be accepted as general equivalents. The general equivalent is also characterized by its local scarcity and common Acceptance and approval, if you can find it everywhere, or you can take it out, it will not be used as a general equivalent. As can be seen from the first case, different tribes, regions and countries can have their own currency, and even a tribe or country can have different currencies at different times. In this sense, enterprises, especially multinational corporations, in theory, can have their own currency in the empire. Multinational network companies can create their own online currency, and multinational data companies can develop their own digital currency.
The second case is that money is also a liquidation mechanism. Even if you trade in a region, you need to have liquidity at any time, that is, the currency can appear anywhere at any time, or people are convinced that this general equivalent is not circulating. It must be there. For example, in the era of gold as a currency of circulation, people often carry gold for trading. However, it has been found that carrying gold is inconvenient over time. People began to use gold as a guarantee to issue corporate and bank checks. Banknotes appeared, and gold did not need circulation. It is because people are convinced that there is gold protection. After the birth of the Internet, telecommunications technology, and blockchain technology, the corresponding currency or currency symbol can appear at any transaction location or node within the system at any time to meet the payment or settlement requirements of currency payments. Therefore, Internet companies, Internet companies, and data companies can create their own digital currency, or issue their own mobile digital currency based on a legally guaranteed currency, which is inconvenient or costly to replace legal tender, or for a long time. If there are problems, there is no obstacle.
However, digital currency must meet the needs of society, that is, these intangible assets – intangible currencies can be converted or cashed into other commodities, assets or wealth, or even legal tender, and must be large-scale, universally recognized, if not With this function, digital currency is only a small range of currencies, and does not have a wider range of public credit. Generally speaking, the national credit is higher than the corporate credit. The digital currency of the national currency and even the national digital currency comparison enterprise has wider public identification and acceptability, while the public identity of corporate credit and corporate digital currency is relatively insufficient. Moreover, the credit of the regime is not political power. Under normal circumstances, the credit of its currency is higher. Of course, the credit status of the digital currency of a multinational company and the digital currency of a country should be analyzed according to different situations, but fundamentally, the regime can prohibit the use of corporate digital currency, and corporate digital currency cannot prohibit the use of digital currency by other companies. .
The ultimate goal of the Libra blockchain is to create a new global currency.
The third case shows that when the society lacks the monetary liquidity that people trust, the trade, the economy and the normal life of people are constrained, and even the economic crisis occurs. This is what people call deflation. Conversely, if we can create enough liquidity that is recognized by the society and create money, money can promote investment, stimulate production, and promote economic development. This is the reason that development can generate funds and funds can promote development. The development of the digital economy, if the creation of digital currency, in theory, is conducive to the exchange of digital assets and investment in digital assets, and promote the development of the digital economy.
In theory, digital currency can exist and there are reasons for existence. But is digital currency a currency created by an exclusive company, or a currency created by many data companies during the transaction? Digital assets and their transactions, in terms of digital characteristics, should create digital currency that conforms to digital characteristics, and become a general equivalent between digital assets. Is there such a currency? What is the general equivalent between digital assets? According to the history of commodities as a currency, money and digital currency must also be tangible and visible, to convince people that they are real, real money, and that the currency itself is creditable at least within the scope of the enterprise empire. You can measure the value of any digital asset. At least so far, no company that claims to be a digital currency can clarify what its equivalent is. In reality, all digital currencies are not equivalents. They use the existing currency as an equivalent to measure the value of digital assets, rather than using the digital currency itself to measure the value of digital assets. Therefore, fundamentally, there is no digital currency. Digital currency is a financial system design for the interests of the corporate empire. It is an intangible currency and a virtual currency. Whether it is feasible or not, it needs to be verified.
So far, there has not been a currency that can surpass the sovereign currency, nor a currency that is circulated, denominated, traded, and settled completely out of sovereign currency, unless it is a barter transaction or barter. Today, people say that electronic money, online currency, digital currency, etc., are not actually money, but the general equivalent – the different manifestations of sovereign currency, including different forms of expression in the field of payment.
Historically, there are several conditions for the birth of the original currency: one is accepted as acceptance by all traders as a general equivalent; the second is the banknote that the power is forced to accept; the third is that the currency has a long-lasting stability (public credit), if the currency does not have Long-term stability, and even serious inflation, people will abandon banknotes or a certain currency, choose more credit equivalents such as gold, silver, calligraphy, real objects, etc.; fourth is the currency with the general equivalent or legal tender as credit Guarantee, guarantee and create new currency. Banknotes are created in accordance with gold as a guarantee and guarantee. Other currencies created based on banknotes are not real currencies, but quasi-currency, secondary or derivative currencies, such as money orders, letters of credit, stocks, bonds, etc.
Digital currency does not have the conditions for the birth of the original currency, so it cannot be created. It has been created, not a real currency, but a means of profit, investment, and trading. It has no general equivalent status and is a secondary or derivative currency.
Second, Libra: the new life of super sovereign currency SDR
(a) confusing Libra
The International Monetary Fund’s special drawing rights have been confusing, and Libra’s attempt to create SDRs is used to create digital currencies, making digital currencies a borderless currency, and borrowing the characteristics of the linked exchange rate system, which is even more confusing. Sex. To uncover the mystery of Libra, let’s first understand FB’s description of digital currency, and then we will describe SDR.
1. The three components of Libra
According to the white paper, Libra’s mission is to create a simple, borderless currency and financial infrastructure that serves billions of people.
Libra consists of three parts, three parts working together to create a more inclusive financial system: First, based on a secure, scalable and reliable blockchain, Libra currency is built on the Libra blockchain. “Based on; second, the asset reserve that gives its intrinsic value as a backing, which is the key to Libra’s design; third is governed by the independent Libra Association, whose mission is to promote the development of this financial ecosystem. This shows that this is the currency creation or issuance of the market mechanism, but accepting the supervision of the government is like the issuance of bills by banks and the issuance of letters of credit.
2. Two Keys to Libra Currency: Blockchain and Legal Currency Asset Mortgage
Libra blockchain is divided into “licensed” and “non-licensed”. Licensing is the need for a certifier node to access the blockchain platform, similar to a clearing bank member. Non-permitted is that non-members can enter this blockchain without verification, which means that the blockchain is open and requires better technical support. The goal of FB is to make the Libra network an unlicensed network, but there are no mature solutions available yet. Blockchain technology is the foundation for Libra, but the ultimate goal of the Libra blockchain is to create a new global currency that would otherwise not be called digital currency or blockchain currency.
How is digital currency born? FB believes that the world needs a global digital native currency that integrates the characteristics of the world’s best currency, namely stability, low inflation, universal acceptance and interchangeability. Libra will have the above features and be encrypted. The currency is backed by a real asset reserve (called “Libra Reserve”) and is supported by a trading platform network that buys and sells Libra. Libra does not use gold as a guarantee and will be mortgaged with a range of low-volatility assets. That is to say, people holding Libra currency can exchange digital currency to local currency according to the relevant exchange rate, and there is no currency exchange problem discussed by A41], at least within the scope of its license. Therefore, issues such as exchange rates and changes in asset values due to exchange rate fluctuations are no different from current systems and transactions.
3. Conclusion: Libra is not a currency innovation and will not surpass sovereign currency.
It can be seen that Libra is a so-called currency that serves the digital economy by creating assets or guarantees in the legal currency or even the reserve currency. It is not a digital currency, nor is it an equivalent and value measure between digital assets. It is a quasi-currency, derivative currency, similar stocks, bonds, bank drafts, guarantees, mortgage certificates, etc. derived from current sovereign currencies and equivalents. It’s just that it adds blockchain technology, and companies try to create new currencies from them to make profits and benefits.
Libra does not threaten or influence the status of sovereign currency because it is created on the basis of sovereign currency and legal assets. For example, the issuance of stocks and bonds in the same country and the increase in trading volume will not affect the status of the local currency, but it will expand the scope of application of a certain sovereign currency. Therefore, after the birth of the Libra currency, if the heavily used collateral assets are US dollars, mainly linked to US dollar assets, it will expand the scope of use of the US dollar. But on the whole, it does not involve the internationalization of money, nor is it a borderless currency. It is just that the network and the enterprise have no borders. The transaction is cross-border. The digital currency itself does not surpass the sovereign currency or even replace and replace the sovereign currency. No matter how big a company’s digital currency is, it is simply expanding the scale, scope of use and use of sovereign currency. Therefore, it is impossible to become a transcendence beyond the central bank, destroying the current monetary system, and even breaking the existing international monetary system. The new currency of the sovereign currency.
(2) Similarities and differences between Libra and SDR
According to FB, a Libra is not always able to convert to a local, specified currency. Libra is not “linked” to a single currency, and its mortgaged assets are reputable central bank cash or government bonds, which means Libra It is linked to multinational currencies, and in terms of its licensed nodes, it is also necessary to have the participation of financial institutions, and its assets must also be high-reputation currencies. Since currency is a country’s sovereignty, and accounting and accounting for fiscal years need to be converted to local currency, the currency that participates in FB’s Libra trading and digital asset trading must eventually be converted to local currency or assets, which means Libra’s mechanism. Similar to the International Monetary Fund’s SDR. Although FB does not specify it, it is actually the case.
1. What is the issue with SDR?
The birth of the special drawing right SDR. In the late 1960s, the US trade deficit, the large amount of foreign currency issued outside the US dollar, coupled with the expansion of Vietnam’s war spending, the dollar tends to inflation. The countries of the world do not trust the US dollar and have exchanged the US dollar for gold. As a result, the US gold reserves have gradually declined, from more than 24,000 tons of gold reserves after the Second World War to more than 8,000 tons. Everyone wants no dollar, the dollar depreciates, and gold can’t meet the demand for money in circulation. When a country has a balance of payments deficit in international economic and financial activities, it lacks enough gold to pay or repay debt in a certain period of time. Do it? Therefore, the International Monetary Fund invented the special drawing rights, and issued a free currency with internal settlement or liquidation as a guarantee by the countries to pay the share of the International Monetary Fund, and allocated the currency to different funds according to the proportion of the fund shares paid by the countries. Country, in case of need. This is actually based on the payment of the currency or assets issued a new currency, but in the end is also guaranteed by the assets paid, that is, guaranteed by the dollar or gold.
How to know SDR? It is equivalent to the canteen meal ticket issued by enterprises and institutions in China. This meal ticket can be used for mutual payment and liquidation if necessary. The value and price of the canteen meal ticket in China is determined according to the renminbi, and the value and price determination of the special drawing right is determined according to the currency of many countries. The canteen meal ticket is created based on the renminbi pricing. It cannot be a currency that transcends the renminbi. It is the secondary currency and derivative currency of the renminbi. The special drawing right is not the base currency, but the secondary currency and the subsidiary currency. It is a quasi-currency derived from a variety of sovereign currencies. Therefore, it cannot become a super-sovereign currency and has the functions of pricing, settlement and circulation.
The digital currency derived from SDR cannot meet economic needs. Since SDRs are created on the basis of the share of the paid fund, the total size of the SDR cannot theoretically exceed the assets mortgaged or paid, otherwise the SDR will depreciate. Because of this, SDR cannot be made large, nor can it be circulated internationally as a general equivalent. Therefore, it is envisaged that the International Monetary Fund will issue digital currency based on SDR or guarantee. This is the second birth of the secondary currency, which expands the financial chain, which not only breeds risks, but also cannot fulfill the monetary function because of its limited contribution. The amount of gold is too small to meet the needs of economic activities.
All sovereign currencies have the functions of pricing, settlement, flow, storage, financing, and investment, but SDR does not have this function. All sovereign currencies can be derived from various quasi-currencies, such as stocks, bonds, notes, letters of credit, etc., but SDR does not have the basic functions of money, and it cannot be derived from stocks, bonds, and notes based on SDR. A letter of credit, etc., cannot be developed into an international currency that transcends sovereign currency, so the digital currency of IFM may be an idea.
2. Libra’s mechanisms and interests
Libra is directly established with the relevant sovereign currency and assets as collateral. Therefore, there must be an exchange rate problem between FB and different currencies. Otherwise, enterprises and ~-A cannot enter the blockchain system. Therefore, Libra’s birth mechanism and exchange mechanism are just like SDR, and there is almost no difference. From this, it can be determined that Libra cannot develop into a currency without borders. Its currency and asset exchange itself have national boundaries; it is also impossible to replace sovereign currency because it is linked to sovereign currency, but it is chosen to be linked to which currency. No matter which currency peg is chosen, it cannot replace the unlinked currency. Enterprises and individuals joining the blockchain must enter with convertible credit assets and currency, and the withdrawal must be exchanged for the local currency.
However, Libra and SDR are also very different. It has its own systems and technologies, and it is market-oriented through this system and technology. Although Libra currency is also an internal accounting currency and an internal common currency, this internal common currency has an external economy. Daily close ties, not short-lived needs.
FB creates Libra from the theoretical design point of view: First, similar to WeChat, Alipay, there is a large deposit assets, all organizations and individuals involved in the network business using Libra will have a balance (constant) on the account, FB can be from Benefits, this is the technology; Second, unlike WeChat and Alipay, it can create digital asset transactions, these transactions are huge, you can charge transaction fees, and WeChat and Alipay are not tradeable, just pay; third is firmly Grasp customer and customer data. The node added by Libra is actually a membership fee, which can charge a large amount. One node is 10 million US dollars per year, and 100 nodes is 1 billion US dollars. Not only that, but the participating organizations can also firmly establish relationships with customers and accurately grasp the traces of their behavior, so the cryptocurrency is insecure. The so-called confidentiality is to the outside world, the central bank is kept secret, but for the participating institutions and FB, it is not a secret, but a digital asset. The traffic data of all actions and business status are all in the blockchain; The assets can be operated and gain huge benefits; the fifth is the benefits of business expansion and market expansion. Finally, if the currency is recognized within the network and forms a path dependence, it is possible for the Libra currency to derive other functions, such as Libra’s own mortgages, deposits, loans, and derivative documents.
3. Where are Libra’s internal problems and risks?
The first is Libra’s currency or asset structure. No matter which currency exchange rate and status will change, affecting the stability of the currency, the US dollar, the euro, the Japanese yen, and the British pound have all been used as international currencies. Is it a stable currency? No. There is no such time in this era, the exchange rate cannot be stabilized, and the value of Libra cannot be stabilized. Not only that, but with the exchange rate changes, the value of the mortgage assets will change, and it needs to be continuously evaluated. The value of the currency cannot be stabilized and even bring speculative opportunities.
Secondly, once digital currency is allowed to exist and develop, within the enterprise, money can be derived from many other financial products. For many participating companies, there is a huge risk. Once used for guarantee, mortgage, pledge or even derivative, the capital chain appears. The problem is a systemic crash. The breakage and severity of the chain mainly depends on the multiple relationship between the value of the mortgage assets that can be used and the value of the financial chain. Assuming that Libra can deposit, guarantee, and mortgage, it actually means Libra depreciates against legal tender. Assuming that Libra’s ratio to fiat money is 1:1, Libra’s guarantee certificates, deposit certificates, etc. are exchanged with legal tender, and libra holders cannot redeem them. If it can’t be directly exchanged, it can be used internally. Once the capital chain breaks, Libra will depreciate greatly, unless FB itself takes profits to ease the break of the capital chain. At the same time, business operations and competition, there are risks at any time, which will bring risks and confidence crisis to the value of network data company assets.
Again, it is the guarantee issue of the network company. Libra’s asset reserves are provided by the trading platform’s network. These trading network companies must have sufficient assets to mortgage, and even ensure that their own assets are stable and value-added. If not, Libra’s asset reserves are very risky. More importantly, the network companies are also different nodes. The economic situation of the countries in which they are located is different. The operating and development capabilities of the enterprises are different. This will lead to huge differences in the supply and demand of Libra between different nodes. The assets of the Libra reserve are of a specific structure. Therefore, the structure of its monetary assets will constrain the development of the digital economy, and even bring about currency mismatches and their crises.
Finally, once the digital currency is profitable, there will be many different digital currencies. The depreciation of the value of the existing digital money company’s assets will inevitably lead to the depreciation of the digital currency mortgage assets, which will lead to the depreciation of the digital currency. And competitors will inevitably emerge, and more than one company will create digital currency, there will be many companies engaged in the creation of digital currency. If digital currency companies use digital currency for fraud, it will bring many companies to bankruptcy and compensation difficulties.
Third, the basic understanding of digital currency
(a) Libra will eventually prove that it is actually a replica of SDR
Libra is created with a sovereign currency as a mortgage. Similar to SDR, SDR cannot be a super-sovereign currency. Libra is bound to become a borderless currency. If Libra can be allowed to exist and trade, it is similar to bank notes and money orders. The bills issued by enterprises are circulated within the scope of the enterprise empire, and can even be traded with the market at a certain exchange rate; Libra can become a quasi-currency, derivative currency such as stocks, bonds, financial derivatives, and can serve data companies and data assets. To promote the development of the digital economy.
(2) The digital currency is envisaged without borders, and as a result, new borders will inevitably emerge.
Assuming the system permits, all network companies, communication companies and even companies with data can set up digital currency. For example, airlines, shipping companies, various Internet companies, Internet of Things companies, payment companies, etc. can set up their own digital currency. In other words, digital currency is not the only exclusive monopoly, but diverse, who is the real borderless currency? How to exchange digital currency? Once the scope of the digital currency company is exceeded, the issue of exchange between digital currencies comes. No borders encounters national borders between enterprises, and currency exchange between corporate digital currencies.
(3) Digital currency is an innovation in payment methods, not a currency innovation
Digital currency is not a currency at all, but a payment method combined with technological innovation in the blockchain, it is impossible to produce a currency in the sense of value scale. Blockchain is just technology, which can provide convenience and reduce costs. But the blockchain itself is not a currency, nor does it generate money. The figures do not produce general equivalents and value scales. The true value scale is still legal tender.
Money can be virtual, it can be intangible, but the virtual, intangible premise is that there must be a physical currency. If there is no physical currency, the symbols can be recorded, transferred, added or deleted on the Internet. This is the settlement and payment function, and cannot be called currency. All currencies, except gold, are interest-bearing currencies. Libra cannot live without interest. It also means that it cannot be used as a currency for circulation, but as a bookkeeping and payment currency symbol.
(4) Digital currency cannot become a super-sovereign currency
In 2015, Ma Yun said that by 2020, Alipay’s transaction volume exceeded the sum of VISA and MARST cards. Greenspan said that Ma Yun not only challenged China’s financial order, but also challenged the US dollar financial order. The author once thought that China’s WeChat and Alipay had found a new way to internationalize the currency and could avoid the SWIFT system. It seems that these words are overstated. Where is the key? WeChat and Alipay are all connected with bank cards. Without leaving the bank card, they will not be able to get rid of supervision and will not be able to get rid of the sovereign currency. Third-party payments have been detached from the regulatory system and have spawned some financial services and product innovations, but the central bank’s network payment company’s networking and regulatory requirements require third-party payment institutions to accept central bank supervision. Libra’s main institutions are still financial companies such as credit card companies and banks. The essence or main business is still payment, and payment cannot be separated from the payment supervision system to create money for profit. Libra is trying to use assets as a collateral to create money. This is against the principle of payment, which increases the exchange rate and increases the operating costs of participating institutions.
(5) Blockchain technology can serve payment settlement
In essence, digital currency is an attempt by network or data companies to use data technology, payment methods to innovate, and to obtain financial benefits across borders. Ma Huateng said, “Technology is very mature, it is not difficult, it depends on whether regulation is allowed.” The Secretary said that in the words, it is crucial.
Finance needs to be regulated and rules must be followed, and digital currencies are trying to break through financial systems and rules through technology. This should definitely be prohibited. The creation of money has enormous benefits, and everyone tries to create money. But money creation must be able to really promote economic development and wealth increase, and prevent the redistribution of wealth. Therefore, no institution or individual can freely create and derivate money, even if it must be carried out under the institutional and legal framework to prevent risks and prevent the use of currency creation for profit.
The innovation of data technology in payment settlement aims to eliminate the inefficiency and high cost of the current payment and settlement system and eliminate the inconvenience of centralized concentration. These technologies can be applied to payment clearing systems, allowing the payment clearing system to directly use blockchain technology and distinguish between central bank systems and market systems, rather than allowing data technology companies to directly control the payment and settlement system across borders. Central banks of all countries can also use blockchain technology to solve some of the shortcomings of payment settlement in the current centralized background.