China’s Central Bank Is Stepping up Developing Own Digital Currency in Response to Libra
People’s Bank of China, the country’s central bank, has been reportedly stepping up its effort in creating its own central bank digital currency (CBDC) in response to Facebook’s Libra. The topic has now been one of the most trending hashtags on Weibo (Twitter-like social media in China).
In fact, the PBOC has started the study on digital currency and the central bank backed digital currency early in 2014, a step to counter the challenge from cryptocurrencies like bitcoin.
According to Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau, the PBOC has already received official approval from the State Council and been working with market institutions on creating a central bank digital currency.
“Behind fiat money, there lies interests, power, international politics and diplomacy. If a payment tool functions like a money, it would inevitably have a large influence on the fiat money, monetary control and financial regulation.” Wang said.
Apart from the CBDC, Wang also talked about the latest buzzword Facebook’s Libra, saying it could potentially pose a challenge to Chinese cross-border payments, monetary policy and even financial sovereignty, in a speech during an academic conference hosted by Peking University’s Institute of Digital Finance.
Wang’s main points are briefed as follows,
- In 2014, the PBOC has initiated the research and development in digital currency.
- At the time when Facebook launched Libra, the PBOC also launched its digital finance research platform, in conjunction with Alibaba’s Ant Financial.
- After receiving approval from the State Council, the PBOC has been working with market institutions on creating central bank digital currency.
- The R&D of the central bank digital currency is being led by the PBOC’s Currency Gold and Silver Bureau, and Wang Xin is the director of this bureau.
- The PBOC once raised concerns that cryptocurrencies like bitcoin might replace fiat money in some ways, while the price volatility of bitcoin-like cryptocurrencies and inconvenience in their transaction have reassured them that cryptocurrencies could have little possibility to replace fiat money.
- The release of Libra has drawn high attention from the PBOC. As Libra claims it will be linked to a basket of major currencies, it to some extent solves the problem of trust and mass adoption. In addition, it is based on the large social network platform Facebook, if Libra is widely used for payments, it would be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system.
- In an effort to promote the R&D of CBDC, the PBOC have specially set up digital currency research institutes in cities like Shenzhen and been working closely with local organizations.
- How to respond to the challenge Libra poses? Wang proposed three plans – step up creating central bank digital currency, all countries release their own Libra equivalents, issue a super-sovereign digital currency as the IMF (International Monetary Fund) previously proposed.
- Rethink our regulations on cryptocurrencies. In the past years, we hold a very rigid stance over cryptocurrencies and crypto assets. With the release of Libra, what attitude and strategies should we adopt?
- In the field of digital finance, international cooperation needs to be strengthened and China’s voices need to be heard. The voice of the country does not necessarily be represented by the voice of the Chinese government, but should also include important voices from the market and people in the country.
At the conference, Libra and its potential influence on finance have been heatedly discussed. Huang Yiping, a Peking University professor, said China had done well in promoting financial inclusiveness with digital finance, in contrast to the United States.
“It remains unclear if Libra will succeed … but the concept won’t disappear,” said former central bank adviser Huang, “but it has sent a warning to China that its lead (in digital finance) is not a sure thing.”