Libra Meets Yuan? China Wants “Sovereignty” With New Digital Currency
In recent months, reports have swirled that the People’s Bank of China (PBoC) has been accelerating its plans on a digital version of its yuan fiat currency, partly in response to Facebook’s proposed plans to create an internationally-minded Libra stablecoin.
Now, a top official at the Asian superpower’s central bank has confirmed the coming digital yuan will be like the Libra cryptocurrency in some respects.
That official is Mu Changchun, the former deputy director for the payments division at PBoC. Changchun, who now heads up the bank’s Digital Currency Research Lab, made the comparison during a public lecture he gave this week.
Roughly translated, the lecture was titled ““Fintech Frontier: Libra and the Prospects for Digital Currency.”
A New Yuan
In the public lecture, Changchun said the coming central bank digital currency (CBDC) would have the “functional attributes” of paper money while also ensuring the Chinese people greater control over their own currency:
“Why is the central bank still doing such a digital currency today when electronic payment methods are so developed? It is to protect our monetary sovereignty and legal currency status. We need to plan ahead for a rainy day.”
The revelation comes after Wang Xin, a senior PBoC researcher, said earlier this summer that the central bank was paying “high attention” to the Libra over fears the “basketcoin” could further entrench the dominance of the U.S. dollar.
As Xin said at the time:
“If the digital currency is closely associated with the U.S. dollar, it could create a scenario under which sovereign currencies would coexist with U.S. dollar-centric digital currencies. But there would be in essence one boss, that is the U.S. dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”
With Xin’s and Changchun’s comments taken together, it’s clear that China’s top bank is actively trying to move away from the long shadow of the dollar. And that motivation is seemingly the main driver behind a digital yuan.
“This is increasingly looking like it may actually happen,” New York Times correspondent Nathaniel Popper noted after Changchun’s latest remarks were reported by Reuters on September 6th.
This is increasingly looking like it may actually happen. A Chinese national cryptocurrency. https://t.co/xnPTD5hfiT
— Nathaniel Popper (@nathanielpopper) September 6, 2019
Like the Libra, But a Different Beast Altogether
Changchun revealed that the digital yuan won’t require bank accounts or even an internet connection to facilitate transfers.
Specifically, users will be able to use transact with the CBDC by placing mobile phones against one another using near-field communication (NFC). Moreover, no bank accounts will be required to use the digital yuan as long as users have a mobile wallet, much like other cryptocurrencies.
“Traditional electronic payment is useless in an environment where there is no signal,” Changchun relatedly said during this week’s lecture.
Such a dynamic is why the senior PBoC official said at one point that “even Libra can’t do this.”
Notably, the digitized yuan will be usable through major Chinese enterprises like Alipay and WeChat, much like how Facebook has enlisted major U.S. companies like Visa and Mastercard to help administer the Libra.
Don’t Expect the USA to Launch a CBDC Any Time Soon
The Federal Reserve is the central banking system in the United States. So it’s no small matter that he cast doubt on the idea of a dollar CBDC happening any time soon. At a forum in Switzerland this week, Federal Reserve Chairman Jerome Powell said:
“We are following the whole question of digital currencies. It’s not something that we are actively considering. For us, it raises significant issues that we would want to see resolved.”
On the flip side, China apparently feels the opposite. We’ll have to wait and see what that leads to in the years to come.
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