Southeast Asia may have a stable currency of its own, competing directly with Facebook’s Libra.
Written by: Gu Yanxi, founder of the American Liyan Consulting Company, a researcher and practitioner in the blockchain and encrypted digital asset industry
In June 2019, Libra announced its plans and the corresponding white paper for the first time. It immediately caused a huge response globally, especially in the blockchain and encrypted digital asset industry. After that, in my research on it, I believe that given the active economic activities in Southeast Asia and the region’s enthusiasm for blockchain and encrypted digital currencies, a Libra in Southeast Asia will soon appear. After my opinion was released, someone mysteriously said that he is participating in such a project, and Libra in Southeast Asia will appear at the end of 2019. But so far, such a Southeast Asian Libra has still not appeared. Obviously, including me, the market overestimates this possibility.
Libra in Southeast Asia may be a false proposition
Libra’s main financial product is Libra stablecoin. Since Libra’s underlying blockchain is globally accessible, the members of its planned Libra Association are also on a global scale, and the digital stable currency issued by it is also planned to be used on a global scale. If there is a Libra in Southeast Asia, the stable currency it issues should not be restricted by region. It is impossible for this stable currency to circulate only in Southeast Asia and not on a global scale. So a stable currency similar to Libra but only circulating in Southeast Asia is likely to be a false proposition. In addition, Libra’s initial stable currency against the target fiat package includes two currencies in Southeast Asia, the Japanese yen and the Singapore dollar. Since the coverage of the Libra project is global and Southeast Asia is its focus, even if there is a stable currency specifically designed to serve the Southeast Asia region, it is likely to have direct competition with the Libra stable currency.
In view of the above considerations, if there is an attempt similar to Libra in Southeast Asia, and it can be significantly different from Libra, then it should first be able to meet the needs of cross-border payments and transactions between Southeast Asian countries, and get approval from countries in Southeast Asia. stand by. Only in this way can there be a digital stable currency that can be used across borders in this region and will not spill over to other regions.
The possibility of Libra in Southeast Asia
Southeast Asia is one of the major economic hotspots in the world. From a long-term perspective and geographical location, the economic exchanges between this region will be a region with close economic activities within the region. And such economic activities must require a more efficient form of payment. Therefore, there is such a demand for stablecoins in the market. Given that the Libra Association aims to be on a global scale, and it is also dominated by North America, Libra’s business goals may not be welcomed by regions outside North America. Europe is obviously very wary of Libra (see my related article). But Europe already has the Euro, so I think even if the Libra stablecoin is launched in Europe, its impact within Europe is questionable, especially after the launch of the Euro CBDC. In Southeast Asia, a more effective payment network method is indeed needed to support economic activities between regions.
Currency application scenarios can be divided into two application scenarios, wholesale and retail. In the wholesale application scenario of cross-border payment, central banks of various countries will first develop CBDC for this application scenario, and major banks will also work to provide more effective cross-border payment settlement methods between banks. Therefore, if an organization like Libra appears in Southeast Asia, the goal of its services should also be in the field of cross-border payment and transaction for retail customers. Such application scenarios are also actual application scenarios of Libra. Therefore, if such an organization is established, its members should be in the field of cross-border trade exchanges, such as cross-border commodity trading, tourism, entertainment, medical care, and so on.
Stablecoins in Southeast Asia cannot be initiated by one of the sovereign governments
In view of the current relations between the major economies in Southeast Asia, even if there is an attempt to stabilize a currency in Southeast Asia, it is impossible to be initiated by any sovereign government in this region. In terms of sovereign government, the high probability event is that each government issues its own CBDC, but at the same time strives for compatibility of this CBDC with CBDC issued by other sovereign governments, so it can well solve the current legal currency services in cross-border transaction payment. insufficient. In terms of supporting compatibility, either by reaching an agreement on the data interface, or by further cooperating to issue their respective CBDCs on the common technical bottom layer, just as the current market is issuing various numbers based on the ERC20 standard on Ethereum Stablecoins are the same.
Libra in Southeast Asia can only be initiated by private institutions
Libra was initiated by a private company. Cooperation between private companies is much easier than cooperation between governments. According to Libra’s latest design, which is based on its white paper updated in April 2020, it will provide a simple financial market infrastructure, and then cooperate with various central banks and financial regulators or subject to their approval. , Issuing Libra stable currency based on a single legal currency. Such a strategy is a strategy of cooperation with various legal currencies. If an organization like the Libra Association appears in Southeast Asia, it may also refer to the design of the Libra stable currency in terms of digital stable currency product design, and issue a series of digital stable coins based on a single legal currency in Southeast Asia.
In terms of operating organization, it will also adopt the same organization method as the Libra Association. Develop membership in major economic entities in Southeast Asia. These members must be local compliant companies, have a broad user base in their business fields, and have compliant fiat currency and digital stable currency exchange channels.
business model
In terms of business models, the digital stable currency business itself is not a business that easily generates very good returns. It has a relatively high threshold for achieving revenue growth points. If its operating organization does not have enough resources to reach such a break-even point, such a project will be a very difficult commercial project to operate.
Organizations that provide digital stablecoins should use digital stablecoins as a tool, not as a purpose. The members of this organization should be able to have their main business and be able to help them achieve business growth with the help of digital stablecoins, instead of hoping to earn income from the digital stablecoin business soon. Facebook’s strategy in this regard is correct. Facebook is fully aware of the risks of its own operation of a digital stable currency, so it has adopted the method of cooperation with other companies. Facebook itself just uses stablecoins to further strengthen the connection between its social users, so that it can further strengthen Facebook’s competitive position in the social field. And Facebook’s main business income still comes from its social applications. Similarly, some merchants in Southeast Asia should cooperate to jointly issue a digital stable coin to support their main cross-border business. Such a stable currency can help members of this operating organization achieve better business growth in their main areas of operation.
