[Exclusive] Blockchain Law: Libra's attempt to denationalize money

Abstract : ChainDD interviewed Pang Lipeng, a lawyer at Blockchain Law, about the regulatory issues that Facebook's Libra faces. Pang Lipeng told ChainDD that this was an attempt to denationalize money. However, currency issuance involves sovereign interests. Without the recognition of sovereign countries, no matter how well Libra is designed, its status may not exceed the current BTC and ETH.


Jun 20

On June 18, the Libra White Paper on Facebook's Encrypted Money Project was officially released. The white paper mentions that Libra, its encrypted currency project, is defined as a stable currency and its mission is to build a simple, borderless currency and a financial infrastructure for billions of people. Libra is supported by Libra Blockchain, the Association's local smart contract block chain platform, which is dedicated to solving two problems of encrypted currency, providing banking services for global non-bank accounts and promoting low-cost fund transfers.

Libra mentioned in her project white paper that some projects attempt to undermine existing systems and bypass regulation rather than innovate in regulation and regulation to improve the effectiveness of anti-money laundering initiatives. We also believe that the only way to ensure a sustainable, safe and credible support framework for the new system is to work together with the financial sector, including regulators and experts from all sectors.

According to the chain method team analysis, its specific manifestations are as follows:

1、Libra will collaborate and innovate with the financial sector, including regulators and experts from all sectors.

2、The regulatory entity of Libar block chain and Libra reserve is the Libra Association, which is composed of multiple independent members. The Libra Association is governed by the Council of Associations, which initially consisted of global enterprises, non-profit organizations, multilateral organizations and academic institutions as founders.

3、Establish a reserve supervision team (comparable to USDT) consisting of "custodians of regulated global institutions" distributed in different places. The Association will strive to minimize its role as Libra Reserve Manager through fully automated reserve management.

4、Improve the effectiveness of anti-money laundering initiatives.

5、The Executive Team of Libra Association will include the Policy Director (Advocacy and Communication Team), the Compliance and Financial Intelligence Director, and the General Legal Adviser (Legal Team).

ChainDD interviewed Pang Lipeng, a lawyer at Blockchain Law, about the regulatory issues that Facebook's Libra faces. Pang Lipeng told ChainDD that this was an attempt to denationalize money. However, currency issuance involves sovereign interests. Without the recognition of sovereign countries, no matter how well Libra is designed, its status may not exceed the current BTC and ETH.

ChainDD: Libra is officially defined as a stable currency, with a basket of bank deposits and short-term government bonds of relative value in its reserves. Some people have said that Facebook is using a model to grasp the Seigniorage in the digital economy era. How do we view Facebook's behavior from the perspective of regulation?

Pang Lipeng: According to the description in the white paper, Libra's goal is to become a stable digital encrypted currency, using all real asset reserves (called "Libra reserves") as guarantees, and supported by a network of trading platforms that buy and sell Libra and have a competitive relationship. Anchoring a basket of currencies is similar to the Special Drawing Rights (SDR) of the International Monetary Fund (IMF). SDR, also known as paper gold, is a unit of account created by the International Monetary Fund and allocated according to the share pledged by Member States, which can be used to repay the IMF debt and to compensate for the balance of payments deficit among Member States.

We believe that in some ways, Facebook's Libra issuance is not a complete coinage right, because its issuance is limited by reserve assets, not by sovereign credit printing. As a means of payment, it also requires other credit assets (sovereign currency, creditor's rights) as a medium. For example, when we use Bitcoin to pay, we essentially first use the value of the commodity's French currency. Converted to Bitcoin, and then paid, if we can not get rid of the process of converting into French currency, virtual currency can hardly be called real currency. Just as critics argue that SDR is a castrated currency that cannot be used for payments outside the IMF system, it is not a real currency in essence, but a unit of account. It must be used in other currencies before it can be directly used for trade or non-trade payments. If Libra takes the same approach, the above criticisms are equally valid.

On the other hand, we don't think the act of issuing coins is a monopoly. On the contrary, it proves that private organizations can issue their own "currency" when they have reserve assets. If Facebook can issue them, why can't BAT issue them? Therefore, we prefer to believe that this is an attempt to denationalize money. As Hayek put it in "The Denationalization of Money": "If the public understands that they pay the price of cyclical inflation and currency instability for the convenience of using only one currency in daily transactions, and have to occasionally consider the benefits of using currencies other than those they are familiar with, they will probably find that. The system is too much. We believe that from a regulatory point of view, currency issuance involves sovereign interests. Without the recognition of sovereign countries, no matter how well Libra is designed, its status may not exceed the current BTC and ETH.

ChainDD: Since encrypted currencies are not strictly regulated like legal currencies, will Facebook's encrypted currencies run the risk of regulatory problems, especially in anti-money laundering and KYC?

Pang Lipeng: For encrypted currency, preventing money laundering and terrorist financing, anti-tax avoidance and tax evasion are the problems we must face at present. Previous EU reports mentioned that the anonymity, cross-border ease and decentralization of virtual currencies posed great challenges to regulation. Anonymity makes it difficult to identify both sides of the transaction and the flow of funds; transboundary nature makes it easy for exchanges and transactions to transfer to countries and regions with weak supervision; and decentralization means that there is no clear issuer, so it is difficult to determine the regulated party in the formulation of regulatory system. From the current information, Libra still faces the above problems.

KYC is a basic anti-money laundering measure. It mainly deals with investor eligibility and identity verification. Its purpose is to help regulators determine where the money ultimately flows. Strictly speaking, the block chain system is not an anonymous system, but an alias system. The user's address is equivalent to Wechat or QQ nickname. Although the nickname can't tell who is behind it, it does not mean that the regulator can't do anything about it. First of all, the big data formed by frequent trading habits can help regulators to find and identify regulatory risks. Secondly, under certain circumstances, anonymous front-end and background real names are also acceptable regulatory options. The key is how to balance the relationship between personal privacy and public interests. Finally, Facebook has a huge database of 2 billion people. This huge database of user social data naturally provides great convenience for KYC. If we can get through the Calibra, the energy will naturally exceed our imagination.

ChainDD: Digital currencies may pose risks such as asset outflows, including previous rumors that India is considering incarceration measures for encryption-related actions. How do you view the conflict between Facebook's global implementation and national policies?

Pang Lipeng: As mentioned before, currency issuance involves sovereign interests. It is a huge interest for a sovereign country to issue currency without any real gold and silver reserves. It is impossible for a sovereign country to give up this right. Therefore, as long as there is a conflict of interest, there will be regulatory contradictions.

ChainDD: From Morgan Coin to Facebook's Libra, mainstream American institutions are fast entering the digital money industry. At the same time, the regulation of SEC in the United States is becoming more and more compliant, including the recent formal prosecution of Kik ICO for breach of securities law. What is the trend of the regulation of digital currency in the United States? Will it conflict with Facebook's development?

Pang Lipeng: As far as we know, the attitude of SEC to the supervision of virtual currency has been clear. In general, virtual currency is regarded as securities. After the issuer fulfills the strict obligation of information disclosure, the government gives the investors the right of choice, and the investors choose and take their own risks. From this point of view, the U.S. securities regulatory policy does not limit Facebook's development. In fact, the basic principles of SEC's regulation of digital assets should never be changed - "We hope to protect investors and the healthy development of the market, but also promote innovation in the field of digital assets. "

We know that, in the final analysis, the focus of regulation is to protect market investors. Normally, regulation follows the following logic: the intensity of regulation is proportional to the possibility of investors'interests being damaged, and inversely proportional to the professional level and risk tolerance of investors themselves.

The SEC's close attention to digital assets is true, but it can also see its friendly attitude. As a new thing, although SEC is constantly trying to regulate the development of digital assets with the existing regulatory framework, they also realize that for such a new thing, they should have an inclusive and open mind. So they also set up FinHub to understand this new thing in a more open manner and give it proper protection. We also have reason to believe that the SEC's current constraints on digital assets will make it fly higher.

ChainDD: The Financial Action Task Force (FATF) will issue encrypted currency guidance on June 21 to clarify how participating countries should monitor virtual assets, and what impact will that have on companies like Facebook?

Pang Lipeng: Generally speaking, having rules is more conducive to the healthy development of the industry than having no rules.

On the one hand, since the birth of Bitcoin in 2009, the World Bank, the International Monetary Fund and the European Central Bank and other international or regional organizations have been paying attention to the regulation of virtual currency, and have made qualitative analysis of virtual currency from different angles. For example, in 2015, the European Central Bank defined Bitcoin as "a digital value carrier that is not issued by the Central Bank, credit institutions or electronic monetary institutions. In some cases, it can be used as a payment tool and a regional centralized virtual currency." The World Bank defined Bitcoin as a digital value carrier based on its own unit of measurement, which is different from electronics. Currency is a digital payment method based on legal tender. At the same time, the World Bank believes that Bitcoin is an electronic virtual currency which uses encryption algorithm to achieve consensus. According to the above definition, it is not difficult to find that the legal attributes of Bitcoin are recognized by the authorities. One is that Bitcoin is a carrier of value; the other is that Bitcoin can be used as a means of payment in some cases.

On the other hand, because the block chain is borderless, but the regulation has borders. Because there is no authoritative organization with universal influence and powerful functions and powers in the world and the interests of sovereign countries conflict, the traditional way of making treaties or establishing international customs is likely to be ineffective in formulating regulatory schemes for virtual currencies. In this case, through FATF or OECD and other international organizations to develop regulatory standards on virtual currency, and then by the sovereign countries to transform the standard into domestic law is a more efficient way, anti-money laundering, anti-tax evasion and tax avoidance of the global governance system is also established in this way.

Therefore, FATF's attention to digital money may indicate that the era of global regulation of digital money is approaching. In the long run, this is good news for all practitioners, including Facebook, because regulation represents recognition. On the other hand, in the era of global regulation, practitioners of block chains may face the challenge of compliance. With the red line of regulation established, compliance will become competitive and viable.

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