What kind of spark will be created between RMB and Libra?

category:Finance
 What kind of spark will be created between RMB and Libra?


Similarities and differences between digital RMB and Libra

There are two versions of Libra, but they have not yet been officially released.

In the white paper of Libra 1.0, Libra is an independent management association led by global social network giant Facebook. In 2020, Libra launched a borderless currency which is proportionally linked with us dollar, euro, Japanese yen, British pound and Singapore dollar. Later, in version 2.0, the focus shifted from anchoring a basket of currencies to anchoring a single currency.

Hao Yi, a researcher at the Bank of China Research Institute, said that the central banks digital currency and Libra are essentially credit currencies issued based on token. Technically, blockchain technology can be used to achieve fast, efficient and transparent information transmission.

He believes that the main difference between Libra and the central banks digital currency is that the credit base is different. Libra relies heavily on the business credit of Facebook and its partners, as well as a basket of monetary assets it collates. The central bank digital currency is based on a countrys national credit.

DCEP is a sovereign digital legal currency with national credit endorsement, which is more reliable than Libra. It is closer to the peoples livelihood and the participating institutions have strong executive power, which is incomparable to Libra. Sun Yang of Suning Institute of financial research also mentioned this point.

Li Lianxuan, chief researcher of auco cloud Chain Research Institute, mentioned that from a legal point of view, DCEP has unlimited legal compensation, that is, when DCEP is used for payment, merchants cannot refuse to accept it; while Libra and usdt do not have unlimited legal compensation, so businesses can refuse to accept it.

Hao Yi also pointed out that the regulatory systems of the two sides are different. The digital currency of the central bank is a part of the French currency, and most of the mainstream economies have mature laws and regulations on currency issuance and management. However, there is no perfect legal support for the management of Libra, and there are great differences in the attributes and attitudes of cryptocurrency among countries.

He believes that digital RMB and Libra have different application scopes. The digital currency of the central bank is the digitization of the legal currency of a country. Except for a few international currencies, its application scope is mainly limited in one country. Many countries and regions prohibit the use of foreign currency for settlement of domestic transactions. Since the birth of Libra, it has been facing global payment. Its social software such as WhatsApp has no national boundary attribute (except that it is prohibited in a few countries or has special regulatory requirements), and it is difficult to track the payment behavior and determine the regulatory territory. Therefore, the application scope of Libra will exceed the national boundaries and realize global application, and its application scope may exceed Most of the worlds fiat money.

Sun Yang also said that DCEP supports dual offline payment, and Libra needs network to pay. DCEP uses RMB as its asset reserve, and its exchange rate fluctuates slightly. Libra uses a basket of currencies as its asset reserve, and there will be exchange rate fluctuations. DCEP is a two-tier operation system, and Libra is a semi decentralized management mode governed by Libra Association. DCEP does not have lock-in blockchain technology. Libra uses blockchain for top-level settlement and centralized architecture for bottom settlement.

Competition or complementarity?

Hao Yi believes that Libra has impacted on a countrys currency sovereignty, which is unacceptable to all governments. Moreover, the main function of Libra, the central bank digital currency, can be realized. Therefore, on the premise that the technology and financial resources of developed countries can support, the country will issue its own central bank digital currency.

Facebooks market value has exceeded the national assets of many countries, and its bond credit rating has also exceeded many sovereign debt ratings. In this regard, Libra has a greater impact on small and medium-sized economies.

However, some experts believe that Libra cannot subvert the monetary system.

In fact, in April 2020, version 2.0 of the Libra white paper made four major changes to the initial design of Libra. One is to provide a stable currency supported by a single currency, each of which will be supported by reserves at a ratio of 1:1, including cash or cash equivalents and very short-term government bonds denominated in that currency. Although the original design focus of cryptocurrency supported by multiple national currencies still exists, its importance will decline.

But Sun Yang did not agree. He said that Libra is a product of the Internet digital economy. All participants are institutions, which will impact the US dollar monetary system. The five European Union countries have made clear their opposition to Libras entry into Europe. Although the US dollar accounts for more than 50% of the currency package of Libra, it is registered in Switzerland. There are other problems. In fact, the United States is also against it.

The road of implementation of both sides

At present, the digital currency of the central bank is ready to come out, but the launch time of Libra is not clear.

In fact, according to the British media BBC in March, Libra is expected to launch in the autumn of 2020, a few months later than originally planned. But now, less than three months before 2021, Libra has yet to be launched as scheduled.

This may have something to do with the resistance.

Lael Brainard, the Feds governor, also had extensive discussions about the Libra currency, saying it faced a number of core legal and regulatory challenges, including how to link it to a basket of underlying assets.

Money has become a symbol of a countrys sovereignty, which is related to the normal development of the national economy. How many countries are willing to cede their monetary sovereignty to a foreign private company? How to ensure that the central banks monetary policy will not be affected? Especially for the countries whose capital has not been opened, how to solve the problem of capital flight? How to ensure the security of domestic data and information? Sun Yang said, these are very difficult to solve, the impact is too big. If the pace is too big, there will be too many problems, and the final result will only be that it will not be allowed to be regulated and put on the shelf and unable to land.

Hao Yi believes that Libra is not easy to achieve, at least in major developed economies in Europe and the United States. But he also pointed out that Libra can help build digital financial infrastructure in countries with underdeveloped economies and unstable currencies. He said that Libra might start from developing countries with more relaxed regulation and gradually penetrate into developed countries.

So far, not only has the initial design of Libra project been greatly modified, but also its organizational structure has been adjusted many times. PayPal, visa, MasterCard, eBay, stripe, booking and other companies have announced their withdrawal from the list of founding members of Libra. According to the official website, Temasek, paradigm, slow ventures and blockchain capital will join in 2020.