A week ago, Facebook, the world’s most popular social network platform, announced a new project—to launch a cryptocurrency named Libra on WhatsApp, Messenger and a dedicated standalone app in 2020.
The announcement grabbed headline attention around the world, including in China, where mobile-based digital payments have become ubiquitous thanks to the rise of Tencent’s WeChat Pay and Alibaba’s payment arm Alipay. However, regulations remain tight on cryptocurrency activities in the country and Facebook products are practically outlawed.
Nonetheless, some industry watchers believe that Libra, if successfully launched, can scale the same digital payment heights enjoyed by Chinese tech giants without competing with them directly. Others believe that Libra could spark a currency war that would hurt the internationalization of the Chinese yuan.
Facebook’s ability to actually launch Libra by next year remains a major bone of contention as multiple national regulators have already expressed their concerns at the move.
At any rate, the possibility of bringing cryptocurrency to the masses via Facebook has generated a fair amount of excitement in China with leading figures from tech having their say and drawing comparisons with WeChat Pay.
Wang Xing, founder of Meituan-Dianping, hailed Libra as “a genius design,” while Wang Xiaochuan, CEO of search engine Sogou, took to social media stating, “The world will change because of this, and it’s a new challenge for China.” Even Tencent CEO Pony Ma commented that the technology involved is already mature and its success will depend more on whether regulations allow it.
Facebook’s brave move into digital payments can be construed as an effort to emulate WeChat’s successes in the sector. There are both similarities and differences between Calibra, Facebook’s planned e-wallet for Libra, and WeChat Pay.
The two share the same vision of using digital payments as a means to broaden financial access. For a long time, WeChat Pay and Alipay were flag-bearers in terms of providing financial services to the masses via digital platforms. Facebook will likely leverage social media and digital currency to drive traffic to apps within its ecosystem, just like WeChat did.
However, Libra will be able to call on Facebook’s massive userbase of 2.7 billion people, larger than that of China’s mobile payment duopoly combined. WeChat reported more than 1 billion monthly active users (MAUs) worldwide as of the third quarter end last year while Alipay posted over 700 million MAUs.
Calibra, the WeChat Pay of everywhere but China
“WeChat has China, Facebook wants the rest of the world,” Bob O’Donnell, president and chief analyst of California-based market research and consulting firm Technalysis Research, told TechNode.
Libra is a mainstream effort that will get people outside of China thinking about digital currency, said O’Donnell. Using Libra might make more sense in developing nations like India where access to financial services is limited, he added.
WeChat Pay and Alipay have focused on expanding services overseas by catering to Chinese tourists. Calibra can steal a march on Chinese digital wallets because, unlike WeChat Pay and Alipay which are tied to the yuan, it is pegged to a basket of currencies.
Libra will likely become a major competitor for Chinese players in the long run, but not in the short-term, Bart Van Bos, software developer and founder of online media outlet ChinaTechScope, told TechNode
“WeChat has had 10 years to grow an ecosystem of payment integrations and Facebook will go through the same growth with respect to integration,” he said.
China misses out
China has maintained a firm stance against most cryptocurrency activities. In 2017, authorities issued a ban on initial coin offerings (ICOs) and existing cryptocurrency exchanges, which has remained in place ever since.
State-backed Xinhua published an article earlier this week quoting Huang He, a business professor at Yeshiva University, saying that Facebook aims to construct global financial services infrastructure and emphasizing that user reliance on this new system will seriously impact similar platforms.
The hype around Facebook’s cryptocurrency project is instilling a feeling that China could be in danger of missing out.
“If China cannot participate in this new phase of the digital economic revolution, then it may find itself in a passive position within currency competition, not to mention it could lose its advantages within the internet and financial technology sectors,” stated an article published on state-run Global Times, the country’s main foreign-policy publication.
“Unfortunately, we are increasingly seeing this gap between China and the rest of the world when it comes to anything digital,” said O’Donnell from TechAnalysis Research. “This is just another example of China isolating itself, trying to create a more controlled digital environment, he added.
Deng Di, president and executive director at China Blockchain Research Center, gave a presentation (in Chinese) this week about the potential implications of Libra for China. The cryptocurrency’s impact on the global economy could exceed that of a small or medium-sized country, said Deng. “I am very much in favor of having more payment systems that could act as a counterbalance for Libra.”
Deng mentioned in his speech that China’s strength is not in software, but in its manufacturing and hardware dominance. For example, China-made smartphones account for a good size of the market share in India, said Deng. “Is it possible for Chinese smartphone exporters to join forces and promote a stablecoin with the backing of Chinese foreign trade enterprises? Absolutely.”
Stablecoins without China
A number of stablecoins launched recently, none of which are linked to the yuan. Earlier this month, a UK-based project raised $63.2 million from fourteen banks to develop stablecoins for five fiat currencies—the US dollar, the Canadian dollar, British pound, Japanese yen, and the euro.
Libra will be run by non-profit organization the Libra Association whose members will oversee the currency. Facebook has signed up 27 companies and organizations to the body and none are based in mainland China. China’s central bank has itself been pondering and exploring the possibility of having a sovereign digital currency since 2014 but appears to be dragging its feet in actually bringing it to reality.
“The PBOC’s (People’s Bank of China) digital currency will certainly be pegged to the yuan,” according to Benjamin Gu, CEO of CBX Research Institute, which focuses on blockchain technology research. Its circulation in global markets would be limited compared to that of Facebook’s stablecoin, he added.
Gu expects the Libra Association to begin getting more international players involved in the future. “Leading companies in related fields and industries will be actively recruited,” Gu said in a blog post.
In the Chinese-speaking and renminbi market, WeChat Pay and Alipay are the leading payment providers and it is natural that they will be highly sought after by the Libra Association, Gu said.
“However, I think the chances of the government allowing them to join is slim,” he added.
It is very unlikely that Chinese entities will be allowed to act as validator nodes for Libra, Tian Chuan, community consultant at Hangzhou-based public blockchain technology firm Ultrain, told TechNode. The new regulations for blockchain service providers have made it clear that everything needs to be registered and approved before it goes on the chain, he added.
Chinese companies could still find ways to take part in the Libra project but in a limited fashion. “Universities might be allowed to host a node for research purposes, provided that they are not offering the service to the masses,” he added. Chinese companies and investments will probably be able to get involved through entities registered overseas in places like Singapore or the Cayman Islands, for example.
According to Tian’s most optimistic scenario, Libra would succeed in some countries at first, having gained approval from US regulators and accumulated billions of users. Then Libra might launch a censored version in conjunction with the Chinese central bank with stringent know your customer (KYC) requirements.