Facebook refuses to stop Libra, positioning itself to compete with Alipay and WeChat

On June 18, the news that the US social networking site Facebook plans to issue Libra shocked the global financial circle. Although Facebook has been explaining the reasons and mechanism of issuing the currency to the outside world and US regulators for a period of time, and stated that it will not issue the currency alone but will jointly issue Libra with other 27 founding members, doubts still continue.

On July 17, local time in the United States, the U.S. Congress held its second hearing on Libra. The theme of this hearing was "Examining Facebook's Proposed Digital Currency and Its Impact on Consumers, Investors, and the U.S. Financial System", and it was hosted by Maxine Waters, Chair of the U.S. House Financial Services Committee. Previously, Waters had repeatedly expressed her opposition to Libra in public.

At the hearing, the "fire" was directed at the leader Facebook. Sherrod Brown, a Democratic senator on the Senate Banking Committee, said that "Facebook is dangerous" and he even believed that the potential harm of Libra to Americans may be worse than the "9/11 incident."

Congressman Michael San Nicolas called the Libra Association a "conspiracy group."

However, Patrick McHenry, vice chairman of the U.S. House Financial Services Committee, said that although we cannot fully understand the planning of the Libra project, it does not mean that we can stifle innovation. "Digital currency does exist with or without Facebook. Facebook's entry into this new world is just a confirmation of this fact. Bitcoin is an unstoppable force, and we should not stop this innovation."

At the hearing, David Marcus, the executive in charge of Facebook's blockchain team and co-creator of Libra, answered questions from 17 lawmakers.

Marcus said Facebook would not launch the project until it received regulatory approval, but he disagreed with calls from several senior members of the U.S. Congress to halt the rollout of the plans or to launch them in a limited pilot program.

It is worth mentioning that when answering questions from lawmakers, Marcus affirmed the competitive relationship between Libra and WeChat and Alipay. He pointed out that Libra is not a security or ETF, but just a payment tool, just like PayPal.

"Libra and Bitcoin are different in concept," said Zhu Xing, a partner of Shoal Capital who has been observing the blockchain industry for a long time, in an interview with the Securities Daily. Bitcoin has a fixed total amount, while Libra is a digital currency with collateral. It is backed by a basket of currencies, such as the US dollar, the euro, the yen, etc. Each corresponding Libra must be backed by a basket of currencies. Facebook cannot issue as many as it wants, and its basket of currencies may also need to be kept by a third-party bank.

"Libra mainly solves the payment problem. Just like WeChat, we can transfer money to each other and you can put the money in your wallet. The only difference is that Tencent does not issue its own currency. What we transfer is digital RMB, and what Facebook transfers is Libra." Zhu Xing further stated that Libra will not threaten the US dollar system at present. If Libra is put into circulation, it may affect the exchange rate policy-making power and coinage rights of some small countries.

In fact, Marcus also stated at the hearing that half of Libra’s reserves are in US dollars, so they are relatively stable. “As for other reserves, we will also communicate with organizations such as the G7.”

At the same time, Marcus emphasized: "We do not want to compete with the US dollar. We are actively talking to organizations such as the Federal Reserve to ensure that there will be no impact on the US dollar, and Libra will mainly be used outside the United States."

There are still voices that believe Libra may be stillborn.

"Facebook's biggest problem right now is the credit crisis. The aftermath of the data leak scandal has not yet subsided. Just this month, the U.S. Federal Trade Commission (FTC) voted to approve a $5 billion fine on Facebook, but this is not the end. Facebook is still facing a variety of other investigations in Europe and the United States. If Facebook wants to successfully issue a coin at this time, it will face great resistance." said an unnamed securities industry analyst focusing on TMT.

Editor-in-charge: Tang Jing