A NEW KIND of "IMPOSSIBLE TRINITY"? ON VENUS, LIBRA & PANOPTI-COINS
Binance, the cryptocurrency exchange founded originally in China, has announced the launch of a stablecoin venture, named “Venus”:
Venus, an initiative to develop localized stablecoins and digital assets pegged to fiat currencies across the globe. Binance is looking to create new alliances and partnerships with governments, corporations, technology companies, and other cryptocurrency companies and projects involved in the larger blockchain ecosystem.
Binance has already reserved its public chain technology and cross-border payment system for secure operations of new stablecoins. Since its launch last April, Binance Chain has been running securely and robustly and has issued a range of stablecoins, including a BTC-pegged stablecoin (BTCB) and the Binance BGBP Stable Coin (BGBP) pegged to the British Pound. Binance will provide full-process technical support, compliance risk control system and multi-dimensional cooperation network to build Venus….
VC and industry expert Dovey Wan noted that Binance’s Chinese to English translation of its press release left a lot out, and highlighted that this was more of an overture directed towards China’s government - the implied message including a “use it or lose it” competitive admonition about the State’s power and central authority.
Wan shared how Binance’s co-founder explained Binance’s intentions for “Venus”:
“ @heyibinance said “Venus” is the “One-belt-one-road version of Libra””
Nathaniel Whittemore’s “Narrative Watch” gives a macro view, which I agree with, and summarized in part by Messari founder Ryan Selkis as:
“Binance may be effectively blurring the line between “corporate” currencies, and “surveillance” currencies preferred by nation-states and their central banks.”
Binance’s announcement is on the heels of Facebook’s Libra and Calibra venture - whose announcement was received like a thunderbolt from Mount Olympus and invited the curiosity and wrath of the world’s powers-that-be.
A “Great Game” may have begun for crypto assets and payment protocols which are permissioned and accommodative to governments which I’ll call PANOPTI-COINS.
The Libra backlash, followed by a string of “all of a sudden” multiple news announcements of various faster payment solutions, is no wonder, given that corporate and private entities are actively elbowing their way into a space that was dominated by nation-states’ fiat money - to create an alternative which becomes the new standard.
My observations about Facebook’s Libra, “Coin of the Realm” dovetails with this:
The building of a payments layer, with a new global medium of exchange, on top of a social network - accessible to 2.7 billion users of WhatsApp and Messenger - reflects an intention to create a global alternative to payment apps constrained domestically such as Tencent Holdings’ WeChat Pay and Alibaba’s Alipay.
I agree with NLW’s scenario of potential emerging blocs of monetary and economic influence, which replace the current monetary order: permissionless (e.g. Bitcoin), corporate (Libra and Venus), and State-sponsored digital mediums of exchange. This new triumverate presents a new economic and political puzzle to be solved.
Welcome to a new Impossible Trinity scenario based upon a theory from 1960-1963:
a concept in international economics which states that it is impossible to have all three of the following at the same time:
a fixed foreign exchange rate
free capital movement (absence of capital controls)
an independent monetary policy
It is both a hypothesis based on the uncovered interest rate parity condition, and a finding from empirical studies where governments that have tried to simultaneously pursue all three goals have failed.
Imagine that permissionless solutions are intertwined with Free Capital Flows,
that Sovereign monetary policy still exists, and that fixed exchange rates are subsumed by an emerging class of corporate and state-sponsored “stablecoins” running on the Libras and Venuses of the world to come. This may or may not be a valid set of assumptions but it’s not unreasonable to imagine.
In the original theory, “a central bank can only pursue two of the above-mentioned three policies simultaneously…A central bank has to forgo one of the three objectives.”
But what happens if there are permissionless solutions and / or permissioned “stablecoins” taking over a greater share of financial and economic activity? Can “sovereign” monetary policy exist as it did before? With “pegged stablecoins”, who sets the rates of exchange in the long run, especially since there might be global private enterprises running the show. Free Capital Flows could by default with permissionless / decentralized solutions fall outside of sovereign monetary policy-making.
In ancient times Venus was the the most authentic of the Roman pantheon, morphed from variations of more ancient deities, taking on the role of deliverer of not only love but also good fortune and victory. We shall see if this will be an appropriate naming for Binance’s latest global ambition.