A Defensive Strategy — DCEP to Diem (Originally Libra) Coins

I am not a conspirator, but the alarming of monetary sovereignty is loud and sound. A digital currency developed by the giant technology company — Facebook, is changing traditional financial system, but also threating the monetary sovereignty, especially to those monetaries who are not strong enough to against the U.S dollar. What are the ambitions behind Diem (originally Libra), and what strategic lessons we can get so far from DCEP (Chinese digital coins)?

1. The power of Dollar

According to IMF’s Currency Composition of Foreign Exchange Reserves (COFER), dollar occupied over 60% of total foreign exchange reserves. The next come to Euro, Japanese yen, and pounds.

According to U.S Currency Education Program, there are $ 1,759.8 billion in circulation in 2019, and as much as half of them is estimated to be circulation aboard.

Even without the Bretton Woods system, the US dollar is a veritable world currency with its dominant scales.

2. The value of Diem

It is important to make users have confidence on Libra Payment system, unlike Bitcoin and other cryptos who do not have backup support, the libra payment system will support by two kind of coin: single-currency stable coins (eg: ≋USD, ≋EUR, ≋GBP, etc), and a multi-currency coin (≋LBR).

According to white paper, each single-currency stable coin will be backed 1:1 by the Reserve, which will consist of cash or cash equivalents and very short-term government securities denominated in the relevant currency, and each ≋LBR, being a composite of 1:1 backed single-currency stable coins supported by the Libra network.

In September 2019, Facebook announced that the reserve basket would be made up of 50% United States dollar, 18% Euro, 14% Japanese yen, 11% Pound sterling and 7% Singapore dollar.

3. The ambition of Diem

According to the white paper of Diem, thanks to the internet and mobile, we are accessible using a $40 smartphone from almost anywhere in the world. But still there are 1.7 billion people remain outside of the traditional financial system, even though one billion have a mobile phone and nearly half a billion have internet access. The gap is massive, so as opportunities.

With an existing example of how a technology company working on financial services, WeChat has 1.17 billion users, and users could transfer their money whenever they want within the app, but most of them are Chinese language users. Facebook has 2.7 billion users, and the users and languages are quite diverse. With such userbase, Diem Association could provide massive convenience to people who are not access to financial services by building “the Internet of money”.

Even though Diem Association claims that Libra network is not the competitors of fiat currencies, but it also addresses the possibility that once the network reaches the significant scale, it might evoke some monetary sovereignty issues. Therefore, Diem is uniting some strong currencies, like U.S dollars, Euros, Pounds etc. Then we must bring up to a question, what will be the fate for those currency who is not strong enough? Will them be eliminated?

4. The strategy of DCEP

The problem is more than money, it could lead to sovereignty issues in a long run. For that, you need an alpha to deal with an alpha.

Help domestic technology companies to attract more users. No matter WeChat, Alipay or Facebook, they are establishing financial services based on exiting giant userbases, government work closely with domestic technology company by giving financial subsidies and policy support.

React quickly. There is not much time left. With the leading practice of DCEP and once-take-all Libra, there should be significant progress in next one or two years.