FireWire viewpoint: Libra2.0 enhanced compliance or accelerates the CBDC process

On April 16th, 2020, Beijing time, Facebook released the second edition of Libra’s whitepaper. Compared with the initial version of Libra, it corrected the content which did not meet the rule of regulation and increased the design of the compliance framework greatly. The libra stable currency issuance mechanism is also changed from anchoring a basket currency to anchoring a single flat currency. The technology selection adopts the consortium blockchain system and abandons the non-licensing system plan. The revision of this whitepaper maybe the result of a consensus between Facebook and regulatory agency, Libra will fully embrace regulation and develop towards compliance.

Although Libra was under a variety of “regulatory shadows” and fell into silence for a long time, on October,2019, the head of the Libra Association said that they will simplify the design of the stable currency, it related to a basket of assets before, but it will change to a single legal currency afterward. The FED, Europe The Central Bank (ECB) all stated that they will not prohibit or oppose the issuance of Libra, but it needs to meet the regulatory framework. Libra has attracted the attention of major financial regulators around the world regarding the issuance of digital stable currency based on flat currency reserve assets. On October,2019, after the stable currency working group of G7 released the “Global Stablecoins Impact Study Report”, the work about the regulation of global stable currency was handed over to the G20 Global Stability Board (FSB) begin to do research and formulate global stable currency supervision policy. When July,2020, FSB will submit a final report of the stable currency regulatory policy consultation, and the global digital stable currency will usher in an area of regulation.

The Libra2.0 white paper mainly focuses on compliance, adding four important aspects of content changes, including the issuance mechanism from anchoring a basket of currencies to a single flat currency; In compliance framework aspect, adding financial intelligence function (FIU) in charge of reviewing all participants the business compliance; Technology selection abandons the plan of shifting to non-licensed chain system and insists on the use of consortium blockchain; reserve pool management increases capital buffer protection measures to deal with possible credit and liquidity risks of Libra reserve pool.

The following points can be summarized from the Libar2.0 white paper. First of all, Libra follows the interests of FED as a flat currency group. The main currency of behind of Libra is the US dollar and is denominated in US dollars. Using the external network effect of the Libra ecosystem can continue to strengthen the external spillover effect of the US dollar ’s flow in the global capital market, devour the weak sovereign currency system, and the international currency competition of the US dollar Strength is further improvement. Secondly, Libra will also speed up the launch of the digital flat currency CBDC of other sovereign state central banks. The European Central Bank has already done the research about the issuance of CBDC, but it is very cautious about the issuance of retail CBDC, because it may affect the profits model of commercial banks and cause new systemic risks. The European Central prefer to issue wholesale CBDC, it is equivalent to the digitization of commercial bank reserves. Although FED mentioned that the United States will not issue CBDC within five years last year December, during the pandemic, the US Congress proposed a “digital dollar” plan in the economic stimulus bill. According to the bill, Congress will authorize the FED to create “Fed Accounts” which are “digital dollar account wallets” that store digital dollar assets. On the one hand, after the outbreak of COVID-19 under the US national economic stimulus, the US domestic economic stimulus has the need to release currency. The FED can better implement monetary policies such as precision relief distribution through “digital dollars”. At the same time, during the COVID-19, the demand for digital cash for many people increase rapidly, the United States is ready to join the trend of global currency digitization. In the end, Libra did not give up the goal of creating a borderless payment network and financial infrastructure. Libra envisages becoming a “payment bridge” between CBDCs in the future. By issuing CBDC on the Libra blockchain, with the credit anchor of CBDC, Libra can reduce the risks of reserve pool management and focus on the goal of creating a payment network and financial infrastructure. The cooperation between Libra and CBDC can be more. It is difficult to realize settlement between CBDCs through LBR, most central banks’ CBDC may not necessarily use a blockchain system or integrate with Libra, but Libra has not given up its initial goal because of the pressure of regulation.