Social media giant Facebook has revealed which currencies will underpin its much-hyped digital currency project Libra and in what proportions, reported German newspaper Der Spiegel on Friday. Notably absent is the Chinese yuan.
Why it matters: China is racing to be the first to launch a sovereign digital currency for large-scale adoption, ahead of tech giants like Facebook.
- The impending launch of the DC/EP (Digital Currency/Electronic Payments) system, which will be backed by the Chinese yuan, is partly to compete with Facebook’s Libra. A central bank official previously revealed that the self-developed digital currency will bear a resemblance to Libra.
- Leaving the yuan out of its currency basket may help pave the way for Libra’s approval in its home country, which has been engaged in a months-long trade war with China. US officials have raised concerns about the Chinese yuan’s growing stature as a reserve currency.
Details: According to Der Spiegel’s report, Facebook revealed the percentage breakdown of Libra’s supporting currency in a letter to Fabio De Masi, a German politician and former member of the European Parliament.
- The Chinese yuan is absent from Libra’s currency basket.
- Facebook said in July that 50% of the Libra’s reserve would be backed by the US dollar. The company said in the letter to De Masi that the euro will make up 18%, the yen 14%, the British sterling pound 11%, and the Singapore dollar 7%, according to the Der Spiegel report.
Context: Stablecoins like Libra are pegged to traditional currencies to minimize price volatility. Facebook aims to roll out Libra sometime in 2020, however, it has faced backlash from financial regulators around the world since it was announced in June.
- The Chinese central bank regards Libra project as a rival and a direct threat to the development of the DC/EP.
- The Libra project also faces hurdles in the US and a number of European countries, including Germany, France, and the UK, with regulators and politicians expressing concerns about the threat it poses to monetary sovereignty.