In a recent interview, the head of Facebook’s Libra David Marcus warned that China’s digital payment system could be a real threat to US influence if regulators decide to stifle Libra, its stablecoin project.
China is racing ahead with the development of its central bank-issued digital fiat money even as US officials are trying to figure out how to regulate Libra, he added.
Why it matters: The Chinese central bank began accelerating development of a digital payment system that could eventually replace its fiat currency after Facebook released in June a whitepaper on its stablecoin project.
- Facebook previously said it aims to launch Libra by next year. However, more recently it has seen overwhelming opposition from finance regulators in a number of European and Asian countries, as well as at home in the US.
- The Chinese central bank meanwhile has been very vocal about the development of its digital currency/electronic payment system (DC/EP), though officials have not set a timetable for its release.
- The DC/EP, designed to have a global reach, could help establish the Chinese yuan’s dominance. US officials have raised concerns about the Chinese yuan’s growing stature as a reserve currency amid the months-long trade war with China.
Details: If the US fails to come up with a good answer to digital currency in the next five years, the future will be China “re-wiring” a large part of the world, Marcus said in a recent interview with Bloomberg.
- This could mean “a whole part of the world completely blocked from US sanctions and protected from US sanctions and having a new digital reserve currency,” Marcus said.
Context: Libra started a global conversation on digital currency adoption. However, it has received pushback from central banks around the world who fear that it may bring disruption to the current financial system.
- Chinese central bank official said last month that its self-developed digital currency will bear some resemblance to Facebook’s Libra, which is likely to be banned in China once launched.
- A quarter of the companies—including Visa, Mastercard, and Paypal—that initially agreed to take part in oversight have backed out. In September, Facebook revealed that the currency basket which will underpin Libra is absent the Chinese yuan.
- Amid pushback, the controversial stablecoin project recently received some support from Foxconn founder Terry Gao who recently said that China’s likely refusal of Libra creates an opportunity for Taiwan to “become a place where the two separate systems converge.”