Introduction: Recently, the virtual currency Libra (Libra) launched by the world’s largest social networking site, the United States Facebook, has taken a new turn after a long period of silence. However, behind Libra’s compliance posture is a mystery.
According to the “Financial Times” report, subject to regulatory approval, Libra may take the lead in launching a stable currency pegged to the US dollar in January next year. The specific issuance time also depends on the review of the payment system license application of the Swiss Financial Market Supervision Authority (FINMA).
At the same time, in order to obtain the issuance approval of the regulator as soon as possible, while emphasizing the independence of the project, Libra also changed its name to Diem (day time currency), which means “day, day” in Latin. (Note: This article continues to use Libra related titles)
The Libra Association, a non-profit organization responsible for handling Libra-related affairs, is headquartered in Geneva, Switzerland. Stuart Levey, chief executive officer of the association and former chief legal officer of HSBC, said that the name change is part of the project adjustment in order to emphasize the simpler structure of Libra.
What is Libra?
In June 2019, the Libra version 1.0 white paper released by Facebook stated that Libra, as a simple, borderless currency, will provide financial services to billions of people around the world. Its vision is that no matter where people are or what kind of work they are doing, money transfer can be as easy, cheap and safe as texting or photos.
The white paper mentioned that the financial infrastructure provided by Libra includes three systems. The first is technology, that is, Libra is built on the basis of a secure and scalable blockchain. The second is value, that is, the value of Libra is backed by asset reserves. The exchange of Libra requires corresponding asset collateral, including sovereign currency, government bonds, etc. The third is governance, that is, Libra is managed by an independent association.
In April 2020, the Libra 2.0 white paper was released. Compared with version 1.0, in this version of the white paper, a number of changes have taken place. Among them, the core change is Libra’s compromise with decentralized thinking, and a large degree of concessions and adjustments in terms of regulatory compliance for smooth issuance.
In terms of compliance process, Libra will establish a framework for financial compliance and cyber risk management, while also setting standards for anti-money laundering, anti-terrorism, compliance with sanctions, and prevention of illegal and criminal activities. In addition, the Libra network will also improve market access standards, conduct investigations and filings of association members, dealers, and dealers, monitor network activities, and cooperate with regulatory authorities to act as part of the financial intelligence agency.
Judging from the current situation, if Libra can be launched as scheduled, it will become the world’s first unofficial virtual (digital) currency that meets the highest regulatory compliance standards and is clearly centralized.
World currency dream
The so-called “world currency” refers to the international reserve currency, that is, a currency that is generally accepted by all countries in the world and plays a general equivalent role in the circulation of international commodities. As a world currency, it not only means the value of commodities, but also serves as a means of international payment, purchase and asset transfer.
In fact, when a sovereign currency wants to become a world currency, in addition to the economic strength of the currency issuing country and the guarantee of currency stability, it is also a necessary condition for the currency to be unanimously recognized by the user countries. The first to become the world currency was the British pound, followed by the U.S. dollar and the Euro. With the rapid development of China’s economy, the renminbi is likely to become a new generation of world currency.
In April 2020, Facebook’s financial report data showed that the daily active users of its “Family Bucket” (Facebook, Instagram, WhatsApp, Messenger) business were 2.36 billion daily and 2.99 billion monthly active users. According to statistics, Facebook has the largest number of Indian users in the world, about 300 million, while in the United States, Brazil and Indonesia it has 190 million, 123 million and 120 million users respectively.
As of December 02, 2020, the total global population is close to 7.6 billion. Among them, China ranks first with about 1.4 billion, followed by India with about 1.35 billion, while the United States, Indonesia, and Brazil occupy the third to fifth positions with 320 million, 260 million and 210 million respectively.
In other words, in addition to China, Facebook has a user share of 22.2% in India, 59.3% in the United States, 58.5% in Brazil, and 46.1% in Indonesia in the top five most populous countries in the world, and its global users account for the total population. Up to nearly 40%. This means that, with its huge global user base and business advantages, Libra has the conditions to set foot in the “sacred domain” of the world currency.
Not only that, the blockchain technology with decentralization as the core idea, the value network formed provides an appropriate bearing mechanism for the convenient and low-cost circulation of world currencies, and on the basis of satisfying a series of sovereign currency value exchanges, The resulting international unified payment and settlement system can support the realization of Libra’s original vision to the greatest extent.
Wings and Compromise
However, dreams are wonderful, and reality is cruel after all.
Regarding the Libra issuance plan, considering a series of potential high risks such as the stability of financial order, privacy protection, taxation issues, and network security, the US legislative and regulatory authorities have adopted an attitude of questioning, monitoring, and suppression. In the meantime, the U.S. Congress held several hearings specifically for Libra.
Regarding Libra’s security and other issues, the US regulatory level is mainly concerned. First, for new technologies such as blockchain, relevant regulatory laws and regulations have not yet been formed, and any development may undermine the normal order of the existing financial system. Second, the anonymity of virtual currency, such as allowing free transactions on a global scale, is very likely to be used by illegal activities, such as money laundering, terrorist financing, etc., causing serious consequences.
Faced with strong opposition from regulators, Facebook has also tried its best to stick to it. The Libra project leader David Marcus has stated many times that Libra will be officially launched in 2020 regardless of the regulatory results.
However, such determination did not change the original intention. On the contrary, under the pressure of strong power, Libra chose to “fold the wings” to compromise. Therefore, there is Libra’s first plan to anchor the USD stable currency version in 2021, and the name is changed to Diem in order to accelerate the new life.
The road to compliance: deep and far
When it comes to the subversive nature of Libra, this kind of virtual currency that was born to cross the sovereign walls is reminiscent of its concept of a decentralized world financial system based on a large global user group, and through multiple sovereign currencies. A novel form that supports value realization.
Now, what Libra is impressive and talks about should be the attitude of actively embracing supervision, resolutely brandishing a knife, and embarking on the road to compliance without hesitation. It has to be said that this is not only a rational choice made by a private organization after ups and downs, but to a certain extent, it is more like a supplement and consolidation of the power of “dollar hegemony.”
Obviously, Libra cannot infiltrate the existing sovereign financial system in the form of “going alone”. The result of the confrontation between the two is nothing more than elimination or transformation. From the perspective of Libra, which has become Diem, it is not difficult to find that under the current global wave of currency digitization, Libra is likely to be included as an elite force under the “digital dollar” system, and will play its role in the future global digital financial ecosystem competition. .
01, digital dollar
In May 2020, the White Paper of the Digital Dollar Project was released, and pointed out that the plan is a non-profit organization Digital Dollar Foundation (Digital Dollar Foundation) in cooperation with Accenture to provide consumers and institutions in domestic and global economies The dollar facing the future. At the same time, as a key and prudent measure of the Federal Reserve, the digital dollar will also be piloted in a series of application scenarios.
It is worth noting that although the digital dollar plan was initiated by “Orthodox”, its main participants are actually “civilian”. In addition, the white paper shows that the most important function of the digital dollar is to support the dollar as the world’s reserve currency.
In other words, after Libra has received the orthodox recognition and authorization, it is very likely to be a derivative or even an advance version of the digital dollar, with the purpose of consolidating the dollar’s status as a world currency. Interestingly, the launch of the digital dollar white paper happened exactly one month after the release of the Libra compliance white paper.
Yao Qian, director of the Science and Technology Regulatory Bureau of the China Securities Regulatory Commission, believes that it would be very simple if the digital dollar were to be issued on Libra. At the same time, Libra has gone from a borderless currency to providing services for various countries to issue central bank digital currencies, which shows that it can also be combined with digital dollars. In addition, if it cooperates with Libra, the Fed does not need to consider the cost of system construction, nor does it have to worry about service pressure.
02, the solution
On the surface, Libra is an embrace of supervision in keeping with the times. But in fact, Libra’s new measures seem to be based on the background of the de-cashing of the global clearing system and the de-dollarization of settlements, foreign exchange, and reserve assets in many countries around the world.
Recently, well-known economist Jim Rickards (Jim Rickards) said that because of the various hegemonic behaviors of the U.S. dollar, including the many problems it has brought to oil-producing countries such as Iran and Venezuela, global central banks will further weaken the role of the U.S. dollar and its share of reserves. . The recent dollar index fell 2.6% again, setting a new low in two and a half years.
In the face of the decline in the status of the US dollar, especially under the catalysis of the worldwide public health crisis, the value of the US dollar is facing unprecedented shocks. With Iran’s listing of the renminbi as the main foreign exchange currency, other sovereign currencies have begun to usher in more opportunities. At the same time, the digital renminbi is about to be officially launched, and many countries around the world have begun to develop central bank digital currencies. Under multiple pressures, the United States has to plan to deal with the US dollar. Method.
At a recent meeting, the German Finance Minister said: “I hope that the European Central Bank will accelerate the introduction of the digital euro, and digital payment may become an effective solution to protect the euro from the US dollar.” Facing the unfavorable situation of “all-round attack”, the United States The launch of its own central bank’s digital currency may be more anxious than anyone, and Libra has undoubtedly become the fastest and best response to the urgent need in the United States.
“The digital dollar supported by the Federal Reserve is unlikely to be realized in the future, but the United States must lead the global digital currency financial innovation.” It is no wonder that Fed Chairman Powell said.
03、Intersection·fusion
Realizing convenient and low-cost cross-border payments on a global scale, and thus occupying a place in the new world currency pattern, is undoubtedly the original intention of various countries to develop central bank digital currencies. At a time when the US dollar is in trouble, in order to ensure its dominance in the global currency, the United States is bound to adopt the most efficient and economical way to occupy the high ground.
When the urgent needs of the sovereign digital payment system meet the existing ultra-large-scale financial infrastructure, under the catalysis of the unification of interests, the chemical reaction related to defending the hegemony of the US dollar is beyond imagination. However, all of this is based on the premise that Libra meets the requirements of compliance, security, centralization and control.
According to the white paper, the digital dollar will be distributed according to the “two-tier structure” of primary distribution, secondary distribution, and P2P transactions, that is, from the Federal Reserve docking with commercial bank distribution to various payment modes between individuals and enterprises. If Libra is finally approved for release by the regulatory authorities, regardless of whether it is issued in accordance with the above ideas, at least it will be a “commercial version” of digital dollars produced along the compliance route.
It is expected that without disrupting the stability of the existing financial order, Libra should be able to make breakthroughs in promoting innovative economic models and maintain maximum matching with the existing relevant economic and laws.
In addition, with regard to Libra’s market access issues in Western countries, Li Lihui, head of the China Internet Finance Association’s blockchain working group, believes that Libra still needs to solve some major issues, including ensuring the efficiency and reliability of the technology platform and the viability of the business operation model. The path and credibility of security, transparency, and financial compliance control.
Conclusion
Since its birth, Libra has attracted worldwide attention. The huge user base, coupled with the use of decentralized innovative technologies, has stirred up value influence beyond imagination.
However, as the Japanese TV series “Fraud Game” interprets, human nature is hungry for benefits but also grasps greed. Therefore, there are various rules to balance the two ends of human nature and release the value of trust. “If you don’t follow the rules, you can’t make a circle.” New things are bound to meet constraints and norms after they have experienced barbaric growth.
In this era of technological innovation, various competitions and crises are staged. The interaction between creation and destruction drives the wheels of human civilization forward. In the future global digital financial ecosystem, compliance and security are indispensable.
