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Tsinghua university thesis: impact of Libra stable currency on Chinese monetary policy and countermeasures

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Libra may weaken the effectiveness of RMB foreign exchange management and affect the status of RMB in domestic valuation scale and the process of RMB internationalization.

Impact of Libra stable currency on China's monetary policy and countermeasures
Block technology research and regulation

[to] pickedLibra, launched by Facebook, is a virtual currency system dominated by non-sovereign countries and anchored by legal tender in the context of structural imbalances in the world's monetary system and financial resources. Libra has the property of currency and is essentially a currency of non-sovereign countries. Under the operation mechanism of Libra, China's monetary policy may be affected to some extent. The role of money supply as an intermediary indicator may be weakened, the velocity of money circulation may be accelerated, the amount of cash in circulation will decrease and the amount of deposit reserve will increase, thus affecting the stability of RMB. The uncertainty of supply and demand of monetary quantity increases, the difficulty of adjusting interest rate policy increases, and the effect of monetary policy implementation may be weakened. In addition, it may weaken the effect of RMB foreign exchange management and affect the status of RMB in domestic pricing scale and the process of RMB internationalization. It is suggested that the regulatory authorities take the initiative to clarify the regulatory attitude towards Libra and the regulatory bottom line, and explore the construction of digital currency with RMB as the underlying reserve assets. Appropriately optimize the monetary policy, raise the weekly ductility of the interest rate policy; Further strengthen foreign exchange supervision, establish and improve dynamic scanning and monitoring mechanism; We will open up the discussion on digital currency and digital assets and the forbidden zone for innovation and experimentation. We will carefully use the "motion-based" and "one-size-fits-all" regulatory approach, and explore the establishment of an inclusive and prudent regulatory paradigm. We will accelerate the construction of a legal system for issuing and trading digital currencies, and ultimately provide an institutional foundation and guarantee for financial innovation-driven development.

[key words] stable currency; Block chain; Monetary policy; Foreign exchange management; Financial regulation

Authors: li zhen, liu yingge, dai yicheng, block chain research center, fintech research institute, tsinghua university

The introduction

On June 18, 2019, Facebook officially released its long-planned internal project Libra's whitepaper and beta. According to the official white paper, Libra's mission is to establish a set of simple, without borders, monetary and financial infrastructure serves for the billions of people, by creating a new decentralized block chain, a low volatility encryption currency and an intelligent platform plan contract, so as to create new opportunities for responsible financial service innovation. The Libra project's vision is to be a low-threshold, stable, global digital cryptocurrency. According to the white paper, Libra is backed entirely by real asset reserves (known as "Libra reserves") backed by a network of rival trading platforms that buy and sell Libra. The value of Libra is not anchored to a currency at a fixed exchange rate, but rather in a similar way to floating exchange rates, with prices fluctuating with the price of a basket of reserve assets. 【 1 】

oneLibra stable currency: block chain technology application and currency attribute analysis

Libra is an innovative financial system infrastructure project jointly proposed by Facebook and 28 companies on June 18, 2019. "Libra's mission is to build a simple, borderless currency and a financial infrastructure that serves billions of people," Facebook said in an official description of its vision. Unlike other conception of science and technology innovation project, in Libra project design and promote process, Facebook tries to block chain of ideas and expectations through constructing the powerful technology, based on the global new infrastructure architecture - "the Internet" currency to significantly reduce the cost of financial services, so as to make the project itself has powerful disruptive and competitiveness.

(I) features and applications of the underlying block chain technology

With project Libra, Facebook hopes to create a new global currency that meets the daily financial needs of billions of people who can participate globally. This means that blockchain, with its extremely high transaction throughput and low latency, will be able to support billions of accounts and have an efficient, high-capacity storage system. Libra blockchain technology is aimed at high performance, security and stability. In addition, it is highly secure and flexible enough to support management of the Libra ecosystem and future innovations in financial services. Now that the project is open source, Libra society will oversee the evolution of the Libra blockchain protocol and network, and will continue to evaluate new technologies that enhance blockchain privacy.

The reliable operation of bitcoin for more than 10 years since its birth has preliminarily proved the huge potential of blockchain technology in building a global and reliable payment infrastructure. The entire distributed ledger of the Libra blockchain is built based on the account balance pattern and, unlike bitcoin's UTXO data structure, can support a wider range of scenarios. In order to ensure the security of the stored transaction data, the management and verification of the account state rely on the endogenous Merkle Tree data structure to stratify the information in the account. This is a data structure that is widely used in other blockchains and can detect any changes in existing data. Unlike previous blockchains, which regard blockchain as a collection of trading blocks, Libra blockchain is a single data structure that can record transaction history and status for a long time. This implementation makes blockchain access more efficient, allows any data to be read at any point in time, and USES a unified framework to verify the integrity of that data.

Libra blockchain USES the alliance chain solution developed by the Facebook engineering team, which has a relatively safe and reliable engineering implementation. It USES the BFT mechanism based on the LibraBFT consensus protocol to implement all the verifier nodes to reach an agreement on the transactions to be executed and the order of execution. Even if some of the verifier nodes (up to a third of the network) are compromised or fail, the design of the BFT consensus protocol ensures that the network works. This protocol is more efficient than "workload proof" processing.

Build the underlying financial infrastructure based on blockchain technology, and promote the underlying technology projects with the ideas of open source and agile development, so that the projects have high transparency, reliability and availability. Libra block chain technical details is not the focus of this paper, so don't start, but to be sure, and the traditional financial infrastructure by a qualified service provider directly to complete the financial infrastructure development differently, Libra system reliability and availability is not depends on whether the company has research and development of the financial system, and the system function and safety of all can evolve, can also be the social public supervision, this makes the private companies to build public infrastructure, in addition, the infrastructure of the credibility and performance compared with the existing infrastructure has a certain competitive advantage, This provides the technical foundation for Libra to create higher credit ratings globally.

(2) asset reserve and currency issue

1. The reserve assets behind Libra's stable currency

Libra's reserve mechanism is designed to solve the problem that prices of existing digital currencies are prone to large fluctuations. Generally, money has three main functions: a medium of exchange, a unit of account, and a store of value. Libra aims to keep the price of digital money stable, enabling the holder of digital money to realize the main function of money by creating the expectation that the price will remain relatively stable. Libra supports a range of highly liquid, price-stable assets and, through partnerships with exchanges and other liquidity providers, enables currency holders to exchange at any time at a price close to or equivalent to the value of the reserve gold price.

In a letter in response to German legislator Fabio De Mas, Facebook said the dollar would be the main currency supporting the digital currency Libra (50 per cent), with the rest made up of the euro (18 per cent), yen (14 per cent), sterling (11 per cent) and Singapore dollar (7 per cent). [2] meanwhile, the switzerland-based Libra association refuses to comment on the exact composition of "Libra reserves" in terms of sovereign currencies. But it said the reserve was expected to be in cash and very short-term government securities, denominated in dollars, euros, yen, sterling and Singapore dollars. Thus, the yuan is not on Libra's list of reserve currencies. Libra will rely on the stability of its mortgage assets to become a digitally stable currency, leaving users no doubt about the value of the currency itself, and the design of a basket of mortgages will increase the trust of users in sovereign countries.

2. How Libra COINS are issued

The Libra society encourages users, merchants, and developers to use them by paying founding members Libra COINS as incentives. For retail users, the only way to obtain Libra is to convert Libra in fiat currency at a 1:1 exchange rate, and the corresponding reserve will vary with the demand for Libra. Instead of setting its own "monetary policy", the association "makes" and "destroys" Libra COINS only according to the needs of authorized dealers. To make a new Libra coin, dealers must transfer a 1:1 ratio to the reserve into legal tender. By working with authorized dealers, the association will automatically produce new COINS when demand increases and destroy them when demand shrinks. The management of the reserves will follow the passive principle, any appreciation or depreciation of Libra only depends on the fluctuation of the foreign exchange market.

The institute encourages publicly traded Libra on a number of regulated electronic exchanges around the world. These exchanges offer portals and mobile applications for users to buy and sell Libra. In addition, the association is discussing continuing business relationships with major cryptocurrency firms and top banking institutions as authorized resellers so that Libra can be exchanged for local currency as easily as possible. The institute hopes to create a system that will make Libra easily accessible and very low transaction costs, making it easy to market and use online.

Currently, members of Libra association cover six industries including payment industry, technology and transaction platform, telecom industry, block chain industry, venture capital industry and non-profit organizations, multilateral organizations and academic institutions. Because these members have the advantages of scenarios, data and number of users, once they promote the use of Libra in the platform, it may have a certain substitution effect on the sovereign currency. It is important to note that in the current institutions involved in Libra association (company), the Chinese institutions (the company) has not yet appeared, future Libra formally after the operation, on the one hand, China's lack of participation in decision-making approach, on the other hand, the yuan also lack of mapping in the field of digital currency, may make the digital economy in the future, the application of digital currency track competition at a disadvantage.

3. Libra is essentially "the currency of non-sovereign states"

Libra, launched by Facebook, is a bold idea of "maintaining currency stability" and achieving "global financial inclusion" led by non-sovereign countries in the context of the current structural imbalances in the world monetary system and financial resources. However Libra officially defines this type of digital asset, the scale of value and the means of storage are inherent in Libra COINS because they are designed to be stable. Thus it is not hard to see how Libra, however defined, is essentially a currency. The core issue of currency issue is the ownership of seigniorage and the efficiency of currency use. Considering from this dimension, Libra is essentially the creation of a new currency of non-sovereign countries.

To be clear, there is a difference between "non-sovereign currency" and "super-sovereign currency" : "super-sovereign currency" does not deny the existence of "sovereignty", for example, the euro is a "super-sovereign" currency based on the original "sovereign currency" of eu member states (such as the German mark, Italian lira, French franc, etc.). In 2009, zhou xiaochuan, then governor of the people's bank of China, published an article entitled "thoughts on reforming the international monetary system". This led him to propose the creation of a "super-sovereign currency" that would have two characteristics: a stable currency and a decoupling from sovereign states. [3] of course, this assumption presupposes the continuation of the traditional "legal tender" system and the IMF's Special Drawing Rights (SDR) system. The corresponding "non-sovereign currency" is consistent with the concept of "currency de-nationalization" put forward by liberal economist -- representative figure of the Austrian school hayek. It refers to a non-sovereign currency issued by the private sector, which has no genetic inheritance from the fundamentalist "legal currency", and whose generation, existence and use are not directly related to the sovereign state. It does not require endorsement by the state or government, but is endorsed by participants, users and beneficiaries. In the era of digital economy, the advantages of convenience, efficiency, low cost and easy availability of digital currency will be fully reflected. As a kind of anchor the legal tender of the virtual stable currency, Libra further expands the spectrum of financial technology, in financing, cross-border payment and settlement, offshore currency trading, the application of the scene such as commodity delivery laid a new runway, adaptive, self driven to reconstruct a new monetary and financial ecology, and low operation cost, high efficiency, are likely to form a closed independent, adaptive, the circulation of financial ecosystem, traditional cross-border financial "loan transfer" link is likely to be completed in the system.

Ii. Analysis on the potential impact of Libra on China's monetary policy

The new financial ecology formed by the digital currency represented by Libra, on the one hand, optimizes the allocation of resources, improves the efficiency of financial services, and makes the development of financial services benefit more people. However, on the other hand, as an independently developed financial information technology force, these "destructive" and "alternative" new technologies have significantly changed financial consumption, financing and payment channels, and posed severe challenges to China's monetary policy and prudential supervision of financial authorities. First, there may be a substitution effect on the renminbi to a certain extent. According to Libra, if a country's residents use Libra a lot in transactions, they will to some extent create an alternative to their sovereign currency. Although Facebook is temporarily unavailable in China's mainland, on the one hand, Libra alliance covers multiple transaction platforms such as payment, entertainment, travel and online shopping. On the other hand, some institutional groups can obtain Libra COINS indirectly and use them on the chain through authorized dealers such as exchanges, which may form a direct replacement for Chinese residents' demand for legal currency. Secondly, the formulation and operation of Libra may influence the formulation and operation of monetary policy of the people's bank of China from the aspects of money supply, base money, velocity of money circulation, interest rate policy and monetary policy transmission mechanism.

(I) the influence on the intermediate index of the monetary policy of the central bank of China

Traditional monetary policy usually starts with the fisher-price equation MV = PQ. When the economy is overheating or in recession, the central bank regulates the quantity of money by means of quantity or price tool M. Under the operation mechanism of Libra, due to the wide range of circulation of Libra, some commodities may be priced in Libra. The fisher equation evolves into M local currency V local currency +MLibraVLibra=P local currency Q local currency +PLibraQLibra. On the other hand, the central bank cannot control the supply quantity of Libra, which weakens the effect of monetary policy implementation to some extent. Therefore, the money supply, the amount of basic money and the velocity of money circulation have become important intermediate indexes concerned by monetary policy. The following is an analysis of the potential impact of the occurrence of Libra on related indicators.

1. Impact on the money supply

Under the traditional financial order, the central bank of China generally takes the money supply quantity as an important intermediary index, but in the background of the movement of Libra and other digital currencies, the controllability, measuability and anti-interference of money supply quantity may be greatly challenged. The cash substitution effect of digital currency will reduce the cash in circulation and change the basic monetary structure. In addition, the monetary transformation effect will further change the basic monetary structure, thus changing the total amount of money supply through the monetary multiplier effect, making it more difficult for the central bank to control the total amount of money, and at the same time, making the boundary of different levels of money supply no longer clear. This will further increase the interference factors when the central bank implements the policy of adjusting the money supply, resulting in a large deviation in the implementation effect of monetary policy. [4] therefore, under the Libra operating mechanism, the role of money supply as an intermediary indicator may be weakened.

2. Impact on base money

Libra may reduce the amount of cash in circulation and increase the amount of reserve requirement. However, how the base money changes in general depends on the replacement of cash in circulation, the increase of deposits and the statutory reserve requirement. Base money includes cash in circulation and deposit reserve, which includes statutory deposit reserve and excess deposit reserve. The issuance of Libra will enable more money to be deposited in electronic form in resident accounts. Without considering other changes, Chinese residents will deposit more money in Banks, have less cash in circulation and correspondingly increase the amount of required reserve deposits. In addition, as residents are more willing to withdraw money, Banks need to prepare more currency reserves, so it is possible that accountants will raise more excess reserve requirements, which in general will increase the amount of reserve requirements. In addition, it is necessary to consider that if Libra is widely used, then it will be used in financial products transactions, as well as in credit sales, trade finance, consumer credit, etc. Furthermore, once the Libra system generates credit resources, it is inevitable to generate derived deposits and currency multipliers. If only M0 is used as the equivalent reserve, it cannot satisfy the 100% RMB exchange guarantee and the RMB value stability.

3. The impact on the velocity of money circulation

Velocity of money refers to the number of times money is circulated in a given period of time. In view of the impact of digital money on the velocity of money circulation, there are generally three views in the industry: the first view is that digital money will accelerate the velocity of money circulation; The second view is that digital money will cause the velocity of money to decline and then rise. A third view is that digital money may have different effects on different levels of velocity. This paper argues that the digital currency system represented by Libra is more convenient and practical than the traditional electronic payment system, so the velocity of currency circulation may be accelerated under the Libra payment system.

(2) the impact on China's interest rate policy

1. The objectives and practical difficulties of China's interest rate policy

At present, China's interest rate liberalization has entered a new stage of interest rate formation and regulation mechanism that is in line with the market. In April 2018, the central bank governor yi gang to attend the boao Asia BBS "normalise" monetary policy as "BBS said:" China is continuing to promote market-oriented interest rate reform. The current interest rate in China there are still some "double track", money market rates are completely determined by the market, and the deposit and lending rates are still the benchmark interest rate adjustment, the commercial bank deposit and lending rates will be according to the benchmark interest rates to rise and down, the future market in the direction of reform is to make the two orbital rates gradually unified." [5] the goal of the central bank's interest rate policy is to form a market interest rate system and interest rate formation mechanism based on the central bank's key policy interest rate, mediated by the market base interest rate, and determined by the market supply and demand relationship between the deposit and loan rates of financial institutions.

China's interest rate policy is still in the stage of trying to cultivate the key policy interest rate and the market benchmark interest rate in the process of dual regulation and integration. As for the benchmark interest rate of the money market, it has been clearly pointed out in the 2016 monetary policy implementation report that the repo rate DR007 of deposit financial institutions has a positive effect on cultivating the benchmark interest rate of the market, or is a candidate indicator of the benchmark interest rate designated by the policy. The benchmark interest rate of the credit market and the LPR of the loan base interest rate are the possible candidate indexes. However, since the commercial Banks still carry out floating pricing mainly through the benchmark interest rate of loans, the LPR has not played an obvious role. Interest rates set by Banks still rely heavily on benchmark deposit and loan rates and interbank self-regulatory pricing mechanisms to price liabilities/assets. There is still a period of transition before Banks can set their own effective pricing power.

In 2015, the central bank proposed to explore the "interest rate corridor mechanism" in the fourth quarter monetary policy execution report. The principle is that the central bank keeps the interest rate in the money market close to the target interest rate by providing a loan facility and a deposit facility to commercial Banks. Interest rate corridor operating system is more conducive to the formation of stable expectations of financial market participants, and can respond to changes in market liquidity in a timely and accurate manner, so as to have more advantages in controlling short-term interest rate fluctuations. In addition, the central bank does not need to frequently conduct open market operations, thus reducing the operation cost of monetary policy.

2. Impact on China's conventional interest rate policy

The transmission channels of China's monetary policy mainly include interest rate, credit, exchange rate and non-monetary asset prices. The role of interest rate transmission is becoming more and more obvious and has become the main channel of monetary policy transmission. As an intermediate variable of monetary policy, interest rate has a great impact on money supply and demand. Once Libra is issued and used by some users, it may lead to the instability of the money supply, the effectiveness of quantitative monetary policy may be lower than that of price monetary policy, and the importance of interest rate regulation in monetary policy may be further highlighted. The uncertainty of supply and demand of currency quantity will increase, the difficulty of interest rate adjustment by interest rate corridor mechanism and the difficulty of independent and effective pricing by Banks will increase.

Since the interest rate of Libra is determined by the interest rate of its mortgage assets, it is hardly regulated by China's interest rate policy, so it may weaken the effectiveness of China's interest rate policy to some extent. In addition, when the specific interest rate policy orientation lead to market interest rates and reserve assets, as a Libra sovereign credit currency rates appear larger deviation, it can also cause the demand for domestic fluctuation is considerably and, in turn, is likely to be the implementation of the national macroeconomic regulation and control and the financial industry policy effect produce certain negative effects.

(3) the impact on the transmission mechanism of China's monetary policy

Under the current monetary policy framework in China, the monetary policy transmission mechanism includes three basic links: the central bank to financial institutions such as commercial Banks -- financial institutions to non-financial sectors such as enterprises and residents -- non-financial sectors to social economic variables (total output, price and employment, etc.). Under this transmission mechanism, the implementation efficiency of monetary policy is not only determined by the market-oriented orientation of the central bank's monetary policy, but also influenced by the market-oriented orientation of financial institutions, enterprises and residents. In Libra create financial ecosystem, the breadth of the financial markets (such as cross-border payment transaction) and depth (variety, the degree of active trading, financial instruments arbitrage mechanism) is likely to increase further, may also increase marketing degree, financial institutions, and enterprises, residents and other non-financial sector is likely to be the market signal make positive response. If the monetary authorities will not Libra into the regulatory scope in time, take corresponding measures, so the monetary authorities to financial institutions and non-financial sectors actively, even excessive reaction, may not be able to take appropriate measures to guide and relief in time, the monetary policy transmission process is obstruction, monetary policy implementation effect may be weakening.

(4) the impact on China's foreign exchange management policies

At present, China's foreign exchange management system is a managed floating exchange rate system based on market supply and demand and adjusted with reference to a basket of currencies. At home, money cannot be transferred across borders without cause. [6] therefore, once Libra starts to operate, and China has not established a policy framework for Libra's foreign exchange management, if it can carry out cross-border circulation through some exchange or otc channels, it will have an impact on China's foreign exchange management.

1. Weaken the effect of RMB foreign exchange management

As Libra provides an exchange channel between domestic legal currency and foreign currency, the effectiveness of China's foreign exchange management may be affected. By mundell "Impossible triangle Theory" (Impossible Trinity found), the fixed exchange rate, free capital flows and monetary policy independence only two in three goals can be implemented at the same time, but at present our country's managed exchange rate regime, if Libra can pass some kind of exchange or otc channel cross-border circulation, the exchange between RMB and Libra reserve currency may be more quickly. The circulation of Libra involves the combination of reserve currency of Libra, the massive exchange of financial reserve assets and RMB, which may also affect the independence of China's monetary policy and may lead to the risk of exchange rate fluctuations. Moreover, because of the degree of anonymity of Libra, foreign exchange management becomes more difficult. As the central bank and regulatory authorities find it more difficult to track cross-border capital flows, criminals may take the opportunity to commit money laundering, terrorist financing and other illegal and criminal ACTS, bringing new challenges to the maintenance of China's financial order and the goal of financial supervision.

2. The influence of RMB as the only domestic valuation scale

If Facebook builds an ecosystem and an economy that flows and can operate in a closed loop, the goods and services of the chain economy will be priced in Libra, and Libra will become the monetary yardstick of the chain economy, all on the "high seas" that sovereign states cannot monitor. In addition, a range of trips, entertainment, and financial services offered by merchants in the Libra alliance may be priced and settled in Libra. On the one hand, it affects the legal currency status of RMB in China, on the other hand, it affects the observation index of macro-control and the implementation effect of monetary policy in China.

3. Influence the realization of RMB internationalization goal

In the current stage, the goal of China's foreign exchange management and RMB internationalization construction is to make RMB in a favorable position in the international competition from the perspective of the integration of local and foreign currencies, to serve the domestic economic development and "One Belt And One Road", while maintaining economic stability and preventing economic crisis. [7] however, the appearance and movement of Libra may affect the realization of this goal. For a long time, the RMB foreign account system and the foreign exchange account system have been set up and managed separately. The planned integration policy of local currency and foreign currency refers to the integration of accounts and supervision, which plays an important role in promoting the internationalization of local currency and reducing the risk of cross-border capital flows. The launch of Libra may cause other institutions to organize similar super-sovereign currencies. Under the combined influence of super-sovereign currencies and strong sovereign credit currencies such as the us dollar, the process of RMB internationalization will face greater pressure and resistance. At present and in the future, we should focus on the currency operation risk, the risk of excessive exchange rate fluctuation and the risk of asset price fluctuation in the process of RMB internationalization, and guard against the adverse impact of these risks on the process of RMB internationalization.

Iii. Countermeasures and Suggestions for dealing effectively with new "non-sovereign currencies" such as Libra

Article 3 of the law on the people's bank of China states: "the objective of monetary policy is to maintain the stability of the currency value and thereby promote economic growth." From the above analysis, it is not difficult to see that Libra, once launched in the future, will have a certain impact on the actual implementation effect and goal of China's monetary policy. In this regard, we should attach great importance to, calmly observe, timely act, make relevant plans in advance, and consider appropriate optimization of some relevant policies and measures.

(a) adhere to the bottom line thinking, clear on the Libra regulatory attitude and regulatory bottom line

Article 20 of the law of the people's bank of China clearly stipulates that "no unit or individual may print or sell promissory notes to replace renminbi in the circulation of the market. "Non-financial payment services management method" article 3: "non-financial institutions to provide payment services, shall be based on this method to obtain the payment business license, as payment institutions. Payment institutions in accordance with the law, accept the supervision and administration of the People's Bank of China. Without the approval of the People's Bank of China, engage in any non-financial institutions and individuals shall not engage in or in a disguised form of payment." Renminbi is the only legal currency in circulation in China, and no other currency is allowed to circulate freely. When conducting payment business in China, a payment business license must be obtained and licensed to operate. The new "non-sovereign currency" represented by Libra must also comply with the above regulations when it is used in China in the future. It is the basic principle and the bottom line of prudent supervision to engage in financial business in China.

(ii) discuss the construction of digital currency with RMB as the underlying reserve assets

In order to minimize the impact of the digital currency that issues RMB as the underlying reserve asset on China's financial market and the implementation of monetary policy, we can try to use a large number of issued offshore RMB as the reserve asset to construct the corresponding digital currency representing China's sovereign currency in the field of digital currency. Libra can be used as an appropriate reference to try a government-led approach to provide more options for global digital currency users to choose their medium of exchange. By projecting the RMB into the digital currency field, we can also make preparations for the innovation of the future digital stable currency, as well as for the RMB to participate more in the issuance of related derivative currencies and asset reserve. Taking advantage of the transparent and credible nature of blockchain, governments and regulators can also enhance the monitoring and governance tools for digital currencies issued in the digital currency market based on offshore renminbi.

(3) it is suggested to optimize monetary policy appropriately and raise the weekly ductility and adaptability of interest rate policy

In the monetary policy transmission mechanism of China, interest rate is the intermediate variable of monetary policy, and the uncertainty of money supply influences monetary policy through the transmission of interest rate, thus making monetary policy have strong uncertainty. Under the operation mechanism of Libra, the instability of money supply becomes more prominent. Therefore, it is suggested to optimize China's monetary policy appropriately, strengthen the price monetary policy, weaken the quantitative monetary policy appropriately, and further improve the status of interest rate regulation in monetary policy. At the same time, we should further promote the process of interest rate liberalization, optimize China's interest rate policy, and improve the weekly ductility and adaptability of interest rate policy.

(4) further strengthening foreign exchange supervision and establishing a sound dynamic scanning and monitoring mechanism

In terms of settlement and sale of foreign exchange and foreign exchange transactions, China implements prudent and strict foreign exchange control. Article 4 of the regulations on foreign exchange administration stipulates: "these regulations shall be applicable to the foreign exchange receipts and payments or foreign exchange operations of domestic institutions and individuals, as well as the foreign exchange receipts and payments or foreign exchange operations of overseas institutions and individuals in China. Article 4 of the regulations on the administration of foreign exchange settlement, sale and payment: "domestic entities, resident individuals, foreign institutions in China and foreign nationals in China shall handle foreign exchange settlement, foreign exchange purchase, foreign exchange account opening and foreign exchange payment in accordance with these regulations. Began in February 2019, the Supreme People's Court, the Supreme People's Procuratorate about deal with illegal funds payment and settlement business, illegal buying and selling foreign exchange criminal cases to explain some issues of applicable law stipulated in article 2: "violation of state regulations, the implementation means of foreign exchange or in a disguised manner to trade foreign exchange and other illegal buying and selling foreign exchange behavior, disturb the order of financial market, if the circumstances are serious, in accordance with the provisions of paragraph 4 of article two hundred and twenty-five of the criminal law, convicted and punished for illegal business crimes." One of the important functions of Libra is to provide convenient cross-border payment for users and realize the free exchange with legal currency. In a disguised way, Libra breaks through the circulation barrier between legal currency and legal currency and breaks through the relevant legal rules of foreign exchange management. Therefore, both Libra and any future iteration of "non-sovereign currency" must strictly comply with China's foreign exchange supervision policies and legal norms, and must strictly comply with China's regulations on foreign exchange exchange quota, exchange conditions, approval and registration, and filing management in the process of exhibition, operation and transaction. The author believes that China's foreign exchange regulator should be emphatically from the following several aspects to take measures to strengthen the regulation: first, the foreign exchange supervision departments should attach great importance to Libra new the evolution and development of "the sovereign currency", establishing and perfecting the mechanism of dynamic monitoring and information scanning, real-time monitoring of cross-border capital flows, closely track the fluctuation of foreign exchange market; Second, we should strengthen the necessary linkage mechanism with domestic regulatory agencies, other countries (regions) and international institutions, and take multiple measures to crack down on illegal exchange speculation, evasion of exchange control and illegal exit of funds using the new digital currency as a carrier. Third, further strengthen the management of foreign exchange accounts at home and abroad, timely formulate new norms and standards for foreign exchange management in accordance with new problems in foreign exchange management, take the initiative to strengthen cooperation with international financial organizations, and explore the establishment of an information sharing mechanism.

(5) opening up the discussion and innovation test zones of digital currency and digital assets

At present, the public discussion and experimentation of digital assets and digital currencies are almost off-limits in China. Meanwhile, governments in developed countries, including the U.S. and Europe, have allowed digital currency programs to be tested in an orderly regulatory sandbox through hearings and seminars. Whether in digital currency practice or theory, China has fallen behind developed countries. In November 2018, zhou xiaochuan, former governor of the people's bank of China, said publicly that "digital currency can be owned by the central bank, or by the private sector, or by cooperation between the two parties". [8] regarding the conditions for the private sector to participate in digital currency, zhou xiaochuan pointed out that "the private sector can participate in the construction of such financial infrastructure, but it must have the public spirit under the guidance of the government and take into account the public nature, stability and monetary transmission mechanism." In view of this, China can encourage enterprises to participate in the technological accumulation and application of digital currency and digital assets and gradually build a complete digital currency ecology by combining the achievements of the digital currency research institute of the central bank and industry practices.

First, strengthen research and closely track Libra. Both financial regulatory authorities, financial organizations engaged in payment and clearing business and Internet business giants should attach great importance to Libra, deeply study its governance mechanism, operation status, commercial logic and ecology, and closely track its evolution and development, as well as possible innovations in the future. The regulatory authorities need to pay special attention to the composition of the board of directors, board members and founders of the Libra association, the composition and proportion of the anchoring currency, timely insight and analysis of its possible external impact, as well as the challenges to our financial infrastructure and payment and settlement system, and act in accordance with local conditions.

Second, accelerate the research and application of Central Bank Digital Currency (CBDC). It is suggested that China's CBDC adopt a two-tier operation system, in which the people's bank of China first converts digital currency to Banks or other operating institutions, and then these institutions convert it to the public. This operating system is conducive to improving public access, giving full play to the resource advantages and technological advantages of financial institutions such as commercial Banks and IT infrastructure, and reducing the concentration of financial risks. In addition, the two-tier operation system will not change the existing money delivery system and dual account structure, and will not compete with the deposit currency of commercial Banks, so as to reduce the occurrence of "financial disintermediation". Finally, the digital currency of the central bank must have high scalability and high concurrency, so that it can better adapt to the diversified and high-frequency business scenarios of small retail, without "crowding out effect" on deposits, and avoid the pro-cyclical effect of arbitrage and pressure.

Third, we should encourage enterprises such as the Internet and scientific research institutions in universities and colleges to join Libra and promote the inclusion of RMB into Libra's reserve assets. Several Internet giants in China have been deeply engaged in the field of block chain and other technologies for many years. The application of scenarios and business expansion have been steadily promoted. Moreover, the user base of Internet enterprises is relatively good, and there is a good foundation for them to participate in Libra. Scientific research institutions in colleges and universities have the advantage of intelligence, so they should give full play to the role of "think tank" and make timely analysis, research and judgment. In addition, Chinese enterprises and institutions of scientific research can be encouraged to become Libra partners, actively apply for membership in the board of Libra association, participate in voting on major policy or technical decisions, and promote the entry of RMB into Libra reserve assets.

Fourth, we should vigorously develop the digital economy and the digital asset market and give full play to the advantages of digital capital. According to xi jinping, general secretary of the proposed "to develop the digital economy, the establishment of digital China, digital world" requirement, can consider to allow domestic top (financial) science and technology enterprises in the global is based on the digital currency in the currency of the credit, developing digital asset market, give full play to the advantages of digital capital, actively explore the world of difference in Libra digital currency, thus promote the process of RMB internationalization.

(6) exercise caution in the use of "motion-based" and "one-size-fits-all" regulation, and explore the establishment of an inclusive and prudent regulatory paradigm

In the era of digital economy, how to handle without systemic financial risk and do not break under the premise of the legal bottom line, promote block chain technology application in the field of new financial, moderate reasonable to encourage innovation, adjust the regulation thinking to our country's financial regulator, innovative means of regulation, regulatory paradigm to explore new, more inclusive.

A "one-size-fits-all" approach to financial regulation and governance is not only detrimental to financial stability and the resolution of financial risks, but also directly leads to the stagnation of financial innovation and stifles valuable and reasonable financial innovation in the cradle. In dealing with new issues such as Libra, system makers, legislators and law enforcement need to focus on the balance between innovation and legal compliance, so that the inclusiveness and effectiveness of regulation can be flexibly and dynamically balanced in practice. The institutional concept of embracing moderate innovation, the institutional system centered on the rule of law and more scientific and technological institutional implementation are the institutional foundation and guarantee for financial innovation-driven development.

From the perspective of law, China should accelerate the legal system construction of digital currency issuance and transaction, clarify the legal status, regulatory subject, regulatory system and responsibility of digital currency, improve its legislative level on the basis of comprehensive measurement of risk, and implement continuous and accurate supervision. Analyzing from the Angle of monetary and financial prudent management, in view of the Libra may on China's monetary policy implementation, local and cross-border capital management and the pressure of RMB internationalization, the People's Bank of China, the State Administration of Foreign Exchange and other financial regulators should be away for a rainy day, and put forward a prudential, prospective prevention and response measures, prevent hot Qian Dajin big piece. At the same time, can consider to experimentation with "Sandbox" regulation for digital currency (Regulatory Sandbox) mechanism, clear digital currency from institutions (body) into the standard and scope of business, set the Sandbox Regulatory authority and responsibility of the border, strengthen supervision of collaborative and effectiveness, at the same time, reasonable regulation of draw lessons from other countries (regions) Sandbox practical management experience, finally explore in the field of digital currency regulation conforms to our country actual, inclusive prudent Regulatory paradigm.

conclusion

In the early 1970 s, the famous British economist, Mr Hayek in the book "currency than nationalization", put forward the "currency of nationalization" theory, its theoretical system is the core of the spontaneous order and is composed of elements such as freedom, competition and general rules, freedom is the core of competition is the foundation, the general rule is the guarantee. Facebook's launch of Libra is a classic example of de-nationalisation, or non-sovereign currency, laying a new course outside the competitive system of sovereign currencies. In the tide of the development of financial technology and information and communications, the "abrupt birth" of Libra brings many new challenges and propositions worth further exploration to the theoretical, practical and regulatory circles at home and abroad. After the official operation of Libra in the future, it may have a great impact on China's monetary policy, foreign exchange management policy, payment and settlement system, etc., which should be paid great attention to, studied and judged in advance with a macroprudential attitude, and corresponding plans should be made. Finance is an extremely complex social ecosystem, and it has increasingly become an indispensable guarantee system and power system for modern society. General secretary xi jinping stressed many times in his important speeches that "finance is an important core competitiveness of the country". Facing the new situation, new things, new challenges, our country should continue to push forward financial reform and opening up and consolidate the state's financial security and the core competitiveness of the environment, actively participate in global financial innovation and financial exploration, pratt &whitney innovation paradigm of regulation, improve financial management ability and the management mechanism of modernization, push the line stability zhiyuan, the financial system in China.

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This paper was originally published in journal of xi 'an jiaotong university (social science edition), no. 3, 2020

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