Why did the abandonment of Libra's link to a basket of currencies have early warning signs?

Source: economic observer network

Author: wang yongli

Original title: "wang yongli: will Libra really abandon its link to a basket of currencies?"

Libra, Facebook's proposed cryptocurrency, will be changed to be linked to a single national currency and subject to supervision by international regulators for regulatory approval, Reuters reported on April 16. The details are as follows:

Facebook's proposed cryptocurrency Libra will be linked to the currencies of individual countries and monitored by international regulators, who are expected to approve scaled-down reforms. The prospect of Libra, an app for Facebook's 2.5 billion users, has led to intense scrutiny by regulators around the world, with many worried that the launch of the social network could weaken the state's control over money. Libra, which is seeking approval from the Swiss market regulator, said on Thursday it would now offer "stability notes" backed by the single currency and redesigned tokens based on their pegs. The Libra plan, announced last June, was initially backed by a mix of currencies and government debt. But central Banks and regulators fear it could destabilise monetary policy, facilitate money laundering and erode users' privacy, with some even threatening to ban it...)

So is Libra really going to abandon a comprehensive basket of currencies in favour of a single national currency such as the dollar, euro and pound?

In fact, for this point, the author has long made a prediction:

From June 17, 2018, Facebook plans to issue the basic information of the Libra, have been Posting emphasized that this linked to a basket of currencies, comprehensive, vision form the design of the currency without borders, and is considered by many people will to the national legal disruptive impact the monetary system and international financial landscape, many small and weak currencies may be replaced, as a new super-sovereign currency has more than 20 users, (" is Facebook's cryptocurrency really that much of a god? "posted the public account on June 17, 2018.) ).

After that, it was repeatedly stressed that, under the condition that the country still exists and the sovereignty independence is difficult to be eliminated, the wealth that lacks the national sovereignty and the legal protection is corresponding to it. Trying to replace the national sovereign currency and promote the "de-nationalization of currency" violates the logic and law of monetary development. It is not progress but regression and cannot be realized.

This, combined with a basket of currencies, link up with the idea of not only its architecture design and actual operation challenges very complex problems and risks, including the basket currency composition ratio of the setting and maintenance and adjustment, freezing of currency reserves and management, currency exchange rate determination and change, such as the relationship with the basket of currencies, itself is hard to fall to the ground, but still lack of legal protection, impossible to basket of currencies, at the same time coexist. Even with the dollar as the largest component of the currency basket, it is not the same as the dollar, there is still a competitive relationship, is bound to face strong opposition from the United States, it is difficult to succeed.

Inclusion in the Libra basket does not, as some believe, enhance the international clout of these currencies; If the dollar is the dominant currency in the basket (accounting for 50% of the total), it will maintain or even strengthen the hegemony of the dollar. The currencies of countries not included in the basket will be squeezed or even replaced. The fact is that if such a super-sovereign currency were to circulate globally, the implications for the United States would be profound, not in terms of strengthening the international central currency of the dollar, but in terms of potentially replacing it. Otherwise, the SDR would have succeeded long ago.

A case in point for supra-sovereign currencies is that even the euro, which is firmly supported by the most powerful countries in the region, must be legally recognized and protected by the eurozone countries and completely replace the original national currency in the eurozone as the only new regional sovereign currency. The euro is not a super-sovereign currency, and it cannot co-exist with national currencies.

As a result, it is virtually impossible to create a global super-sovereign currency by any technical means.

For some large institutions working on an international clearing system, even if they were to run their own digital currencies, it might be more feasible to launch separate "tokens" linked to national equivalents and used mainly in that country, rather than a borderless currency directly linked to a basket of currencies.

It can be seen that this idea of creating a super-sovereign currency by linking it to a basket of currencies comprehensively violates the logic and law of currency development and is impossible to succeed. Libra is doomed to make such a major adjustment. However, even if it were to be linked to the single currency, the scope and value of its practical use would still be in great doubt, and it would be impossible to overturn and replace the legal tender system!

The author, wang yongli, is a former vice President and executive director of bank of China and the first mainland Chinese director of Swift.

原文链接： http://www.eeo.com.cn/2020/0417/381426.shtml

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia