The Central Bank of China recently unveiled its plan to delve into the crypto space and declared a crypto war as it is developing its very own digital currency, reportedly in response to Facebook’s Libra.
Facebook’s project Libra has been the talk of the crypto town ever since the social media platform started flirting with the idea of stepping into the crypto space. Now that it has been unveiled, it seems to have set off a chain reaction, a domino effect in the cryptocurrency chasm; China’s decision to launch its own cryptocurrency just proves that point.
China is famous for its unfriendly stance towards the cryptoverse, and Facebook’s Libra is no different in its eyes. According to report, an official from People’s Bank of China revealed that Libra could potentially threaten the country’s cross-border payments, monetary policy and even financial sovereignty.
Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau, shared his views on Libra and its possible effects on the country’s financial fabric. He raised a rather pressing question during an academic conference hosted by Peking University’s Institute of Digital Finance, on Monday.
He asked his audience if the social media giant’s cryptocurrency is going to be widely used for payments, particularly for cross-border payments, would it be able to function like money? And consequently have a large influence on monetary policy, financial stability and the international monetary system?
Despite the country’s general unfriendliness towards cryptocurrencies, PBOC isn’t turning a blind eye to them entirely. In fact, the bank was the first major central bank that studied and researched digital currencies back in 2014, even though it was a move to counter the challenge that cryptocurrenies like bitcoin were posing, ironically enough. Nonetheless it pushed the country to set up a research institution to facilitate the further understanding of digital currencies.
Referring to the fact that PBOC was the first central bank to venture in the crypto space, Wang added that they had an early start in the race all the while acknowledging that significant amount of effort needs to be put in, if they are to consolidate that lead.
According to Wang, the bank has been on its feet and paying high attention to digital currencies after Facebook launched whitepaper for Libra last month that shed much needed light on the highly speculative project and its blockchain-based financial infrastructure project.
Despite China’s keen interest in Facebook’s cryptocurrency venture, the country will not be opening up its proverbial doors for it. There are a few hesitations and apprehensions that the country holds for project Libra.
Firstly, there are concerns regarding Libra’s potential to stir up the international money competition and secondly it can challenge country’s financial sovereignty. China is specifically more concerned about the latter.
Facebook’s whitepaper cleared it out that the forthcoming cryptocurrency will be backed by a basket of major currencies and not just the US dollar. The document also clarified that the reigns of the project won’t solely be in the hands of the social media company, rather the governance will lie with a Switzerland-based non-profit consortium, the Libra Association, which includes more than two dozen companies, including Visa, Mastercard, PayPal, Stripe, eBay and Uber.
Despite that, China has its reservations. Wang explained that if the upcoming digital currency is closely associated with the US dollar, a scenario would arise whereby all the other sovereign currencies would coexist with US dollar-centric digital currencies. He further added:
But there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.
The report suggests a theory that countries in order to cope up with Facebook’s Libra will likely be forced into one of the three situations. Either they’ll have to issue digital currencies backed by their central banks, as in the case with China, or they will have to engineer and offer products similar to Libra.
Thirdly, they might have to resort to a new international digital currency based on the International Monetary Fund’s Special Drawing Rights, which is a basket of currencies that currently includes the Chinese yuan, along with the US dollar, the euro, the Japanese yen and the British pound.
China’s CBDC project is underway as the PBOC has attained approval from the State Council. Reportedly, they are working with market institutions in the country to realize their goal. However, it’s all on the down low for now, as much has not been revealed to the public.
All in all, it’s safe to assume that China will be launching its CBDC soon, because that will give them a “sovereign” digital currency that would fall under its control.