Author Huang Zhen (Professor of Central University of Finance and Economics, Director of Institute of Financial Law, Special Expert of Sino-Singapore Jingwei)
Recently, Facebook announced that it will develop a stable currency Libra and a matching wallet Calibrata, and claimed that its mission is to build a simple, borderless currency and a financial infrastructure serving billions of people. As the world's largest social networking platform, Facebook is going to use its rich resources to launch a particularly grand coin distribution plan, which may combine super-sovereign currency with innovative technology and once again stimulate the infinite imagination of subverting the world monetary and financial system.
Why is this happening? First of all, as the largest social platform in the world, Facebook has a large number of active users. Once the currency is issued successfully, it will have an unprecedented scale effect. Secondly, the application scenarios, application scope and business circle mentioned in Libra White Paper are extremely huge, which makes digital currency not only stay in virtual space, but also have more physical scene applications. Thirdly, it is even more surprising that there are many mainstream financial institutions participating in Libra's coin issuance plan, especially internationally renowned payment institutions such as Visa and MasterCard, so Libra is more likely to integrate into the mainstream financial market. Fourth, Facebook's plan to issue coins has actually been acquiesced by the Federal Reserve. To this day, the Federal Reserve has not expressed its opposition to Facebook's money distribution plan.
We don't need to panic and interpret Facebook's coin distribution plan too much. Instead, we should make rational reflection and predictive analysis, and put forward the theoretical analysis framework of digital currency phenomenon and the future global regulatory framework.
Historically, digital cryptocurrency has only existed for about ten years. However, thousands of digital cryptocurrencies in the past decade have not been supervised and controlled by sovereign countries, just like the wild horses in running all the way. Bitcoin, in particular, is a rare phenomenon in the history of world finance, with the price soaring and plummeting under the hype of various forces. The application scope of Bitcoin and Ethereum is mainly confined to virtual space, and this round of discussion triggered by Facebook's upcoming release of encrypted digital currency means that digital currency may enter a new stage.
Facebook's coin distribution plan is to issue digital cryptocurrency by institutions with great influence in physical space, and financial institutions will participate in it, which will have a huge demonstration effect on a global scale. If the regulatory authorities let their behavior go unchecked, tycoons from all walks of life with various resource conditions may follow suit and carry out regulatory arbitrage, shifting from physical space to issuing digital cryptocurrency, which may take away the coinage right of sovereign countries, lead to the loss of coinage tax of sovereign countries, and impact the current monetary system of sovereign countries and the international monetary system, so the problem of digital cryptocurrency is particularly serious.
Under the impact of digital cryptocurrency, the traditional monetary theory and even the whole financial theory have also been greatly challenged. In traditional financial theory, currency nationalization is a common thing. Currency is a transaction voucher endorsed by national credit and guaranteed by the coercive force of national sovereignty, which has been dominated by the sovereignty of various countries since modern times. However, due to the frequent overspending and currency abuse of sovereign countries, it often leads to serious inflation, national wealth loss and economic and social turmoil.
Many economists are dissatisfied with the problem of excessive and indiscriminate issuance by monetary authorities in various countries and try to propose new solutions. One of the most representative theories is the denationalization of currency proposed by Hayek. He pointed out that the problem of excessive credit currency under the control of sovereign countries cannot be overcome by itself, and it should return to the non-national road of currency issuance, such as allowing enterprises to issue currency or allowing other market entities to issue currency. This idea has aroused the imagination of many people, but no way to realize it has been found. Until the emergence of Bitcoin, people saw the hope of Hayek's idea of denationalization of currency.
How to stabilize the currency value in the past 100 years? After the collapse of the gold standard, all countries in the world have not solved this problem well. Although some scholars call for a return to the gold standard, it is impossible to return to the gold standard. There is also the problem of anchoring the currency. What kind of assets can anchor currency stability? How does the amount of money issued match and adapt to economic development? A series of problems of traditional monetary theory still need to be solved in the field of digital cryptocurrency.
Although bitcoin is called "currency" in name, in fact, the regulatory authorities still regard it as a digital asset or virtual currency, rather than a currency in a strict sense. Since the gold standard of money can't go back, and the issuance of money is inevitable in sovereign countries, how should we judge Facebook's behavior of issuing money and make the next prediction? We can focus on the following aspects.
First, digital currency is the general trend of global economic and financial development, and no sovereign country can avoid it. At present, the digital cryptocurrency on the market is mainly issued by Internet companies, and has formed a considerable user scale. Although sovereign countries do not recognize it as a currency, in fact, it already has the characteristics of private currency and has played a huge role in some business circles.
Second, the issuance of digital currency by sovereign countries must be put on the agenda as soon as possible to meet the challenge of digital cryptocurrency grabbing the right to coin. Whether a sovereign country can launch digital currency, when it will launch digital currency and what the path is should be studied and solved as soon as possible.
Third, digital currency is characterized by globalization and super-sovereignty. Who will dominate the global super-sovereign digital currency and how to supervise it? At present, sovereign countries face major choices. Are Bitcoin and Libra allowed to develop into de facto or super-sovereign global currencies, or are sovereign countries leading and exploring the formation of global currencies or world currencies? All countries in the world should work together to explore solutions.
At present, it is almost impossible for Libra to bypass sovereign countries. If Libra becomes a so-called super-sovereign global currency, it will inevitably touch the monetary policy of the United States and the status of the dollar, and even the interests of other sovereign countries, causing resistance from sovereign countries. Some US congressmen have questioned Libra's coin issuance plan. Whether the future Libra issuance plan can be effective depends on the financial supervision policies of the US government and other sovereign countries, as well as the attitude of the international monetary fund composed of sovereign countries.
Based on the analysis of the above problems, the author thinks that there are three plans for the future development of global digital currency.
The first scheme: include Bitcoin, Ethereum and even the future Libra, and gradually bring them into supervision in the future, which is the so-called "dyeing scheme". The incorporation and recognition of global currencies or world currencies that actually have world influence will be gradually brought into the regulatory track by sovereign countries. At present, there are preconditions, but there are many technical problems to be solved in both compilation and dyeing, and it is difficult for sovereign countries to recognize this plan.
The second option: the current International Monetary Fund or similar organizations issue super-sovereign international currency or global currency. After Libra launched the plan, the International Monetary Fund also claimed that IMFCoin would be launched soon. Under the current package of the International Monetary Fund, namely the eSDR scheme proposed by China scholars Yao Yudong and Yang Tao, promoting digital currency may be the best choice.
The third scheme: a new digital currency international organization is initiated by the sovereign state to promote the global digital currency issue. Or, the major digital currency issuers take the initiative to cooperate with the regulatory authorities of sovereign countries to launch a global digital currency organization. However, it takes time to create a new international cooperation and coordination organization.
Huang Zhen
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