Facebook and China are committed to developing digital currencies that can compete with each other, especially in emerging markets. But while Libra runs into difficulties with the launch, China is ready to present an alternative.
Analysts and industry leaders discuss the geopolitical implications of China cryptocurrency launch, especially if Libra fails to negotiate with US regulators.
Earlier this year, the People’s Bank of China announced that it was working on a RMB-based digital currency that was reportedly inspired by Facebook plans.
According to the deputy director of the People’s Bank of China (PBoC) payment department, Mu Changchun, the cryptocurrency will be much like Facebook’s stable Libra. National cryptocurrency is being developed to protect “monetary sovereignty and legal currency status” in the country. According to the representative of the Chinese Central Bank, the “digital yuan” can be used on such large payment platforms as Alipay and WeChat. In addition, the official pointed out that the digital currency issued by private corporations could cause large losses for users if the issuing organization suddenly goes bankrupt. The digital currency of the Chinese Central Bank has no such risks and is comparable in terms of reliability with paper money, and for interacting with cryptocurrency, you do not need constant access to the Internet.
The national digital currency of China will ensure the safety of users’ personal data, but will not allow the implementation of money laundering operations, assures Mu.
Earlier, information appeared on the network that a number of companies would participate in the distribution of cryptocurrency. Subsequently, representatives of media organizations and the Chinese central bank denied this information.
There is a possibility that the digital currency of the People’s Bank of China may appear earlier than the cryptocurrency project from Facebook. Informants of the China Daily publication claim that the announcement of Libra could affect the plans of the People’s Bank of China and force it to consider new models for implementing the tool, in which non-governmental institutions will play a more important role.
Future trials should focus on non-governmental and cross-border scenarios. Many participants, including private and state-oriented companies, can join the central bank process.
“For the American government, this should be a call to action. While authorities from outside observe the innovative developments of other countries, the United States may miss the chance to become a leader in the global crypto space by allowing its main competitor to enter the market” – commented Ripple CEO Brad Garlinghouse about the upcoming stablecoin in China.
“China has applied strategic thinking to cryptocurrencies” – said Garnlinghouse in an interview with CNBC. “They were dependent on the US dollar as a global reserve currency, so they are now interested in taking a new niche.”
According to Garlinghouse, most regulators and government officials are too concerned about using cryptocurrencies for illegal purposes and the possibility of maintaining anonymity in transactions, while China is looking for ways to remove the dollar from the pedestal of the dominant world currency.
Cryptocurrency will become another field of the technological race between the two largest economies in the world. The United States and China were not only in a state of trade war, but also now there is a struggle for 5G – a new communication protocol with a high data transfer rate. The U.S. Treasury Department has declared China a currency manipulator, and such statements may intensify after Beijing launches its own yuan-backed cryptocurrency. “If US regulators finally ban Libra and decide not to develop regulations that encourage innovation in cryptocurrencies, Chinese digital currency could become the de facto global digital currency in developing countries, mainly through UnionPay, Alipay, WeChat and other messaging applications and payments systems” – said Mark Mahani and Zachary Schwartzman, analysts at RBC Capital Markets.
In June this year, Fed Chairman Jerome Powell said the United States is far from issuing digital currency, as technology is in its infancy. Other Fed officials said the benefits of a digital currency issued by a central bank are “not obvious.” Meanwhile, other digital currencies could “weaken the dominant influence of the US dollar on world trade” – said Mark Carney Bank of England director in Jackson Hole, Wyoming.