Central bank-issued digital currency will resemble Facebook’s Libra: official

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China’s new digital currency will “bear many similarities” to Facebook’s Libra and be used across Chinese mobile payment platforms, Mu Changchun, deputy director of the People’s Bank of China’s (PBOC) payments department, said during an online open course lecture (in Chinese) on Wednesday.

Why it matters: After five years of research and development, China could become the first country in the world to roll out sovereign digital currency. However, central banks in other countries and a horde of tech companies including Facebook and Binance are also mulling plans for future payment systems.

  • China is looking to use what it calls the digital currency/electronic payment system (DC/EP) to cut the cost of circulating physical money and increase its control over the money supply. It is also expected to aid the internationalization of the yuan.
  • The central bank expects the DC/EP to eventually replace the yuan.

Details: Mu said the logic behind DC/EP’s design bears many similarities to Libra. However, Mu emphasized that the digital currency is not a Libra clone.

  • Although electronic payment is already widely adopted in China, there is still an acute need for a digital fiat currency. “It is to protect our monetary sovereignty and legal currency status. We need to plan ahead for a rainy day,” said Mu.
  • Mu said DC/EP would not threaten the dominance of existing mobile payment platforms like Alipay and WeChat Pay. The DC/EP could be used on Alipay and WeChat Pay platforms, Mu said, and it will be safer than mobile payment methods.
  • The DC/EP will also be possible to use it without internet, which Mu said would allow transfers to continue in scenarios where communication channels have been cut off.

Context: China is rapidly advancing the development of its sovereign digital currency and DC/EP’s launch will likely be the first of its kind in the world.

  • Mu said in August that the DC/EP was nearly ready.
  • The central bank has begun “closed-loop testing,” simulating payment scenarios and involving some commercial and non-government institutions, state-run news agency Xinhua reported earlier this week. A dedicated team from PBOC’s Digital Currency Research Lab is now working on the DC/EP in a closed-door environment, away from its Beijing headquarters, according to blockchain media Coindesk.
  • In June, social media giant Facebook announced plans to launch Libra in 2020, but regulators around the world, including in China, have raised concerns that it could disrupt the existing financial systems.