Two Major Progress of Libra
Zhou Xiaochuan said that Libra has made at least two improvements on the basis of encrypted currencies in the past: first, it absorbs the lessons of over-achieving encrypted currencies in the past and can avoid large fluctuations in currency value and speculative elements; second, Libra targets hard demand in cross-border areas.
Specifically, the first step is to avoid the shortcomings of encrypted currencies eager to speculate and make money.。 If the People's Bank of China makes encrypted currencies, it should refer to Hong Kong's experience. The HKMA can issue notes by other institutions (not necessarily the Central Bank). But for every amount of HK dollars issued, 100% certificate of deposit should be prepared.
The second progress is to improve cross-border payments.Libra seems to have little advantage in developed countries, but more influence in developing countries. Libra captured a weakness of the inconvenience of cross-border transactions in the past and put forward her own cross-border solutions. In developed countries, with the application of swift, the problem of cross-border payment is not significant. However, for some small international organizations and backward developing countries, there is a high transaction fee rate for remittances, especially for migrant workers in immigration offices.
Zhou Xiaochuan believes that Libra still has the problem of anti-money laundering, whether it can succeed or not is not known now, but this idea will have an impact on the existing system.There may also be new global currencies that will circulate and be used globally in the future. It may not be Libra, and Libra may be replaced by a better, stricter and more efficient global currency.
Libra represents the trend of digital money
Zhou Xiaochuan pointed out that the importance of Libra is inseparable from the global trend of dollarization. This is actually a problem of replacing and eroding weak currencies by strong currencies. Under the influence of strong currencies, the capital of vulnerable currency countries may flow to strong currency areas in search of safe havens.
At this stage, the global strong currency is mainly the US dollar, and some dollarization process has been going on. In extreme cases, for example, a country in Africa has abolished its own currency and used the dollar instead. We have observed that in Central and Eastern Europe, Central Asia and other regions, there is also a more obvious trend of dollarization.
Zhou Xiaochuan said that there was still a question mark about Libra's success, but at least it came up with an idea that would have an impact. This is not only an impact on traditional business and payment systems, but also an attempt to peer at a basket of currencies, representing a possible trend towards a global currency in the future. In the process of convergence and integration of RMB and foreign currencies, we need to consider the pressure of this trend on us.
Maintaining a strong currency position may put us in a favorable position in the whole process of RMB internationalization in the future, Zhou Xiaochuan emphasized.
Chinese Research Institutions Should "Prepare for Rain"
How should the RMB respond to this future trend? Zhou Xiaochuan believes that it is necessary to make policy research in advance.
In retrospect of China's development, after the 2008 global financial crisis, one of the most important reasons why China has been able to narrow the gap with the United States is that our financial system is relatively sound. Just before the crisis, China managed a major financial reform, and financial institutions and financial markets were in a better state. It is for this reason that we are able to withstand the financial crisis relatively smoothly. This means that it would be of great benefit to us if we could check the potential risks ahead of time. We need to be proactive in policy research and reserve and minimize our weaknesses in possible crises.