People's Daily Online: Libra has led to "agitation" in the cryptocurrency circle, and we need to be careful of concept substitution

People's Daily, Beijing, July 15 (Yi Xiao) Since Facebook officially announced the issuance of the cryptocurrency Libra last month, the topic has continued to be one of the hot topics of concern for financial regulators and the industry.

At a press conference held by the People's Bank of China on Friday (12th), Zhou Xuedong, director of the General Office and spokesperson of the People's Bank of China, said that the central bank is also concerned about this and is also studying the possible impact of Libra on the financial system after its issuance.

It is worth noting that the news of Libra has driven the price of Bitcoin to its highest point this year. Some speculators even deliberately confuse concepts such as digital currencies to hype virtual currencies represented by Bitcoin and Ethereum (hereinafter referred to as air coins).

In fact, although Libra and air currency are somewhat different, neither can be called digital currency. Relevant officials from the People's Bank of China and other regulatory departments have publicly stated many times that virtual currency (including private digital currency) is not currency in nature and cannot replace sovereign currency.

Libra and air coins are not currencies

"Facebook has also joined the ranks of cryptocurrency speculators!" This news, which has excited many cryptocurrency speculators, is not true.

On June 18, the US social media giant Facebook launched the cryptocurrency project Libra and released the project white paper, which attracted widespread global attention. The project association is composed of 28 giants from different fields such as payment, technology, telecommunications, and blockchain. However, Libra is currently facing warnings and close attention from central banks in many countries, including the Federal Reserve, the Bank of England, and the Bank of France.

From the Libra White Paper, we can learn that Libra is backed by clear asset collateral, with a basket of fiat currencies, government bonds and other sovereign credit assets as its value guarantee. In other words, each unit of Libra is backed by a corresponding share of fiat currencies such as the US dollar, euro, and yen.

The issuance of air coins is mostly unrestricted, and there is no legal currency or sovereign credit assets to guarantee their assets, which makes their price fluctuations range large and easy to be manipulated.

“Although Libra is pegged to a basket of fiat currencies, it seems to have solved the problem of large price fluctuations, but it still cannot change its essence of not being a currency.” Sheng Songcheng, a consultant to the People’s Bank of China and former director of the Survey and Statistics Department of the People’s Bank of China, recently wrote in a media article, “One of the core problems is that Libra currently has no national credit support and no central regulation mechanism, so it is questionable how its currency value can be stabilized.”

On the other hand, issuing air coins in China is already illegal. In September 2017, the central bank, the former China Banking Regulatory Commission, the China Securities Regulatory Commission and other seven ministries and commissions jointly issued the "Notice on Preventing the Risks of Token Issuance and Financing", which is known as the ICO ban. The "Notice" pointed out that token issuance and financing refers to the financing subject raising so-called "virtual currencies" such as Bitcoin and Ethereum from investors through the illegal sale and circulation of tokens. It is essentially an act of illegal public financing without approval, and is suspected of illegal sale of token tickets, illegal issuance of securities, illegal fundraising, financial fraud, pyramid schemes and other illegal and criminal activities.

National credit endorsement is the foundation of currency

At present, there are still some differences in the definition of digital currency in the industry, but it is generally recognized that digital currency is a currency presented in digital form, rather than physical currency such as banknotes and coins. It has similar functions to physical currency, but can support instant transactions and ownership transfer without geographical restrictions.

Zhou Xiaochuan, former governor of the People's Bank of China, once publicly stated that the issuance, circulation and trading of China's digital currency should follow the idea of ​​integrating traditional currency and digital currency and be managed according to the same principles.

Public information shows that the People's Bank of China is one of the first central banks to conduct research and experiment with digital currency.

Unlike what some people understand as digital currency, the digital currency issued by the central bank is actually "digital legal tender". The central bank's digital currency can be understood as a certain degree of substitute for cash.

Sheng Songcheng and others also pointed out that even with the advancement of technology, a single paper currency develops into multiple forms such as electronic currency, which is still backed by the national credit, which is the most fundamental basis. Privately created and issued digital currency is not a real currency.

Beware of scams using blockchain

Since the rise of concepts such as Bitcoin and blockchain, criminal cases using virtual currency, digital currency and other concepts to commit fraud have emerged in an endless stream.

Last year, the "Puyinbi" fraud case was exposed. Public reports showed that there were more than 3,000 victims, the amount involved was about 307 million yuan, and the highest loss of a single victim was about 3 million yuan.

In June, the Shanghai Public Security Bureau arrested a gang that used virtual currency and futures investment to conduct online fraud. The fraud gang set up cryptocurrency exchange groups, each of which had only one victim, and induced the victims to trade on their own trading platform.

Multiple departments have jointly issued risk warnings on this matter, reminding investors to be vigilant.

In August last year, the China Banking and Insurance Regulatory Commission, the Cyberspace Administration of China, the Ministry of Public Security, the People's Bank of China and the State Administration for Market Regulation jointly issued a "Risk Warning on Preventing Risky Fundraising in the Name of "Virtual Currency" and "Blockchain", pointing out that criminals are absorbing funds by issuing "virtual currency", "virtual assets" and "digital assets" in the name of "financial innovation" and "blockchain". This is not truly based on blockchain technology, but rather hypes the concept of blockchain to engage in illegal fundraising, pyramid schemes and fraud.

Faced with the "restless" cryptocurrency circle, experts remind investors to keep a clear head and not to follow the trend blindly. They should also be wary of criminals who use stealing concepts to implement illegal fundraising, pyramid schemes and fraud.