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Shocked By Libra, China Embraces New Cryptocurrency Era

Abstract : On June 18th, the Facebook cryptocurrency Libra white paper was released, officially announcing its entry of stable currency.

ChainDD
ChainDD

Jul 05

On June 18th, the Facebook cryptocurrency Libra white paper was released, officially announcing its entry of stable currency.

On June 28th, the fourteenth summit of the G20 leaders was held in Osaka, Japan. President Xi Jinping attended the special meeting of the digital economy and said that the current digital economy was developing rapidly, profoundly reshaping the world economy and the face of human society. We must create a fair, just and non-discriminatory market environment, must not close the door to develop or artificially interfere with the market. We must jointly improve data governance rules to ensure the safe and orderly use of data. We must promote the integrated development of the digital economy and the real economy, strengthening digital infrastructure construction, promoting interconnection, increasing digital economy inclusiveness and bridging the digital gap.

President Xi Jinping pointed out that as a big digital economy, China was willing to actively participate in international cooperation, keep the market open, and achieve mutual benefit and win-win results.

Under the circumstance of Facebook's official launch of its digital currency project Libra, the era of global digital currency competition has opened, and it has to be suspected that China is showing its position.

"China can't be absent in the era of global digital currency competition." This is the comment on Facebook's cryptocurrency Libra from English version of Global Times. The commentary article pointed out that Facebook was very likely to reach an agreement with US regulators to ease the regulatory pressure, and Libra would thus become the actual representative of US dollar in the global digital economy. With Libra's significant first-mover advantage in the digital economy, governments of other countries will have difficulty blocking Libra's penetration in the digital economy. It believes that China must participate in this round of digital economic competition. "With the advent of the global digital economy competition era, it is necessary for Chinese industries and regulators to conduct more dialogue on digital currency, as well as understand and even encourage digital currency. Otherwise, China may fall behind in the new financial landscape."

Three weeks after Libra's release, the Chinese government and central media frequently expressed their opinions, showing their different attitudes. But whether it is valued or worried, all kinds of remarks are showing that Chinese decision-makers have begun to seriously consider the chain reaction brought by libra and the measures China needs to take.

In fact, China has never stopped its exploration of digital currency; instead, it has always attached importance to the study of legal digital currency. The central bank began organizing seminars on digital currency more than three years ago, and then established the digital currency research institute of the central bank. Even in the 2018 and 2019 central bank work conferences, it was pointed out that the central bank would put forward the research and development on digital currency for two consecutive years, and it was emphasized that 2019 was an important year for the further development and transformation of the monetary work.

Industry executives: Libra cannot be taken lightly; if it is successful, banking system will be overturned

Huang Yi, Vice Director of China Construction Bank: If Libra succeeds, it will “disrupt” the banking system.

On July 1, Huang Yi, Vice Director of China Construction Bank, said at the Dalian Summer Davos Forum that, if Libra's model is successful, it is not a “challenge” on the banking system, but “disruption”.

Chairman of the National Finance and Development Laboratory: Digital currency, especially Libra, needs in-depth research

Li Yang, chairman of the National Finance and Development Laboratory, pointed out that digital currency marked a new era of finance. This is the challenge posted by latest technology to traditional central banks, traditional financial regulation systems, and traditional monetary systems. To understand digital currencies, especially Libra, in-depth research, especially from the foundation of monetary economics, is needed.

Wang Yongli: Three talks about Libra, it is full of challenges to become a global currency without borders.

After the release of Libra, Wang Yongli , former Vice Director of Bank of China, commented on his social platform three times to show his views on Facebook's cryptocurrency.

Wang Yongli said that Libra was still a special token used in certain online communities or business districts. It still needs to be supported by legal currency, and it is impossible to completely replace legal currency. As a token of legal currency, the choice to be linked to a basket of currencies is much more difficult and challenging than to a single legal currency. The possibility and actual effect of landing in a basket of currencies is not necessarily better than the token of a single legal currency.

Now when people discuss Facebook's cryptocurrency, it seems that their vision has been realized or can definitely be realized that Facebook's 2.7 billion users will naturally become Libra users, and its application scope will exceed the currency of most countries. They don’t analyze carefully about the real problems such as the conditions of its implementation, existing problems and competition.

In the case that country continues to exist for a long time rather than vanish, it is unrealistic for online digital currency to replace the national sovereign currency or legal currency; the "network stable currency" supported and fully anchored by legal currency can only be a special token running on a specific network platform and it is even more impossible to replace or subvert the legal currency no matter how the specific design changes. It is the actual performance and flow problem of the network platform, not design, packaging and hype of dedicated tokens, that needs to be worked hard to solve. The research and unification of online payment rules should be strengthened, and the global unified payment and clearing supervision system should be promoted.

Zhu Min, Dean of the National Institute of Finance: We should not take lightly on the birth of Libra

In the sub-forum "Shaping China's Future Financial Industry", Zhu Min, Dean of the National Institute of Finance, talked about Facebook's digital currency Libra. Zhu Min said that it is difficult to consider Libra as a kind of Alipay, because Alipay is a payment intermediary, but Libra, starting its payment, has reserves, principal balance and bonds as collateral, and has a basket of currencies for labeling and pricing. Its core concept is currency. Second, Libra's another core concept is cross-border. Third, Libra combines the policies that the central bank has to consider with the functions of commercial bank payment.

Zhu Min said, "We should not take the birth of Libra lightly. It will have a big impact on the existing financial system, the monetary system and even the future reserve system."

But he also said that Libra now had many problems, such as its leverage problem, reserve problem, centralized management system and mechanism problem. It is still in the very initial stage. We don’t know whether it will succeed or not.

Country media: pay close attention and cannot be absent

The English version of Global Times commented on Facebook currency: China must participate in this round of digital economic competition

On June 25th, the English version of Global Times published a review article entitled “The era of global digital currency competition, China cannot be absent” , when commenting Libra, the Facebook cryptocurrency.

The article pointed out that after Facebook issued the digital currency Libra, it had the right to issue currency for 2.7 billion people and thus become an independent "central bank" in the digital economy. To alleviate the regulatory pressures that come with it, Facebook may reach an agreement with US regulators. Once the agreement is reached, Libra will become the actual representative of US dollar in the global digital economy. With Libra's significant first-mover advantage in the digital economy, the US government will have difficulty blocking Libra's penetration in the digital economy. China is no exception.

The Global Times believes that China must participate in this round of digital economic competition.

CCTV: China is concerned about the application of new technologies such as digital currency encryption assets in the financial sector

CCTV Chinese International Channel reported on June 28 that at the Chinese and foreign media briefings held by the Ministry of Foreign Affairs, the G20 Chinese spokesperson said that the G20 is also concerned about the application of new technologies in the financial sector, including digital currency, encrypted assets, etc. China has done a good job in this regard.

People's Daily commented on Facebook: We should have a clear understanding of the risk, challenges and unknown consequences of Libra

On June 28, the People’s Daily published an article to discuss Facebook’s release of its encrypted digital currency Libra. The article pointed out that Facebook wanted to treat digital currency and blockchain separately, and use offline asset endorsement to solve Libra's currency fluctuation problem, while still using blockchain to achieve "decentralized" peer-to-peer transactions and smart contracts. Obviously, Facebook wants to break the application bottleneck of digital currency through this method.

However, can Libra really become the world's digital currency in the future? Can Zuckerberg really realize the vision of “transferring funds around the world as easily as sending text messages or sharing photos”? I am afraid I have to make a big question mark here. In fact, Libra brings a variety of known risks and challenges, as well as unknown consequences, and we must have a clear understanding of this.

Central Bank Conference: emphasis on promoting the central bank's digital currency research and development for two consecutive years

In fact, China has never stopped its exploration of digital currency. It has always attached great importance to the study of legal digital currency. In early 2016, the People's Bank of China held a digital currency seminar in Beijing, with Zhou Xiaochuan and Fan Yifei attended. In November 2016, the central bank began its preparations for the Digital Currency Institute. In 2017, the Digital Money Institute was officially listed.

During the two sessions in 2018, Zhou Xiaochuan, former director of the People's Bank of China, introduced the central bank's research on digital currency, saying that the central bank began organizing seminars on digital currency more than three years ago, and then established the central bank's digital currency research institute. The most recent action was to organize distributed R&D with the industry and develop digital currency by cooperating with the market.

Zhou Xiaochuan also revealed that the digital currency and electronic payment research project organized by central bank in 2007 has been approved by the State Council, and is currently organizing research and development in the industry.

In October 2018, the People's Bank of China announced the open recruitment positions of the central bank's directly affiliated units in 2019. Among them, the Central Bank Digital Money Research Institute recruited four people with digital currency related expertise, mainly responsible for legal digital currency related software systems, encryption technology and security model, trading terminal chip technology research and development work. The major requirements are computer, cryptography, microelectronics, etc.

In the 2018 National Monetary Gold and Silver Work Video Conference of the People's Bank of China, Fan Yifei, member of the Party Committee and vice director of the People's Bank of China, proposed to further intensify reform and innovation and solidly promote the research and development of the central bank's digital currency.

In the 2019 National Money Gold and Silver Working Conference, Fan Yifei emphasized that 2019 is an important year for the monetary and gold work to further promote transformation and development, and once again proposed to increase reform and innovation, and further promote the central bank's digital currency research and development.

On March 13, 2019, Yao Qian, former director of the China Central Bank Digital Currency Research Institute and general manager of China Securities Depository and Clearing Corporation, published the article “Central Bank Digital Currency: Optimization of the Monetary System and Its Distribution Design”. The article explored central bank's issuance mechanism of digital currency and pointed out that the issuance of central bank digital currency should have economic state contingency, and this feature was the key to the central bank's digital currency to solve the dilemma of modern monetary policy.

The article pointed out that the central bank's digital currency played an important role in optimizing the payment function of the existing legal currency. On the one hand, this is reflected in the fact that the central bank's digital currency can reduce the dependence on the payment services provided by the private sector, which can alleviate the central bank's regulatory burden and pressure, and can also strengthen the authority of the existing legal currency.

On the other hand, the issuance of central bank digital currency can solve the dilemma faced by modern monetary policy, including the inefficiency of policy transmission, the difficulty of countercyclical regulation, the inefficiency of money from the real economy to the virtual economy, and the management of policy expectations.

According to Russian satellite news agencies and radio stations, Liu Dongmin, director of the International Finance Research Office of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, said that in recent years, the development of digital stable coins has clearly exceeded the central bank's digital currency. When we talked about legal digital currency in the past, the legal digital currency and the central bank digital currency were synonymous and the legal digital currency equaled to the central bank digital currency. But in the past few years, digital stable currency has begun to develop rapidly in western countries, including Libra of Facebook. At this time, we found that the legal digital currency has two options - one is the central bank digital currency that everyone cared about in the past, and the other is the digital stable currency.

Liu Dongmin pointed out that as a giant social media company, Facebook's own business ecology is very strong, with its global 2.7 billion active users, so the cross-border payment involved may be nearly 700 billion US dollars. Therefore, when Facebook decided to issue digital stable currency, it not only possessed the stable value foundation supported by other digital stable currency national credit, but also obtained a relatively strong commercial ecological support.

In this case, China’s opportunities are fleeting. The US dollar hegemony was largely established after the United States actively participated in the reconstruction of the post-war world economic order and the construction of the international monetary system. Now those countries that are more actively involved in regulating cryptocurrencies may become the new hegemons of the world's finance, and they can also largely determine the development path and direction of the international monetary system for a long time to come.

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