Report: China Bankers Concerned Facebook’s Libra Could Fuel Currency Competition and Compromise Financial Sovereignty

Influential bankers convening at an academic conference at Peking University’s Institute of Digital Finance this week have expressed serious concerns about Libra, Facebook’s forthcoming cryptocurrency payments network, South China Morning Post (SCMP) reports.

Wang Xin, director of the People’s Bank of China (PBOC)’s research bureau warned that if the basket of currencies used to underpin the Libra network is weighted to favour US dollars, Libra could upset the balance established by the International Monetary Fund’s Special Drawing Rights basket.

That basket currently includes the Chinese yuan, US dollars, Euros, Japanese yen and British pounds, and “serves as the unit of account of the IMF and some other international organizations.”

“If the digital currency (Libra) is closely associated with the US dollar,” said Wang, “it could create a scenario under which sovereign currencies would coexist with US dollar-centric digital currencies. But there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”

Regulators around the world have been sounding the alarm regarding how Libra, expected in 2020, could both undermine illicit finance controls and disturb the stability of global financial systems by enabling a massive private corporation to mimic a central bank.

Facebook is hoping to use Libra to enable payments among its 2.7 billion users, about a third of the world’s population, and is also going after potential customers in Africa and elsewhere as part of its expressed desire to “bank the unbanked.”

Wang asked attendees at Peking University to consider the possible impact of Libra if it achieves its objectives:

“If (Libra) is widely used for payments, cross-border payments in particular, would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?”

According to SCMP, China was one of the first countries in the world to respond seriously to Bitcoin when it began studying the network in 2014.

The country also created a dedicated cryptocurrency research institute in 2017.

Due to concerns about fraud, gambling, capital flight and currency devaluation, China has been exercising a progressive ban on cryptocurrencies and their promotion domestically since 2014.

Wang said the People’s Bank of China is paying “high attention” to Libra, and that, “lots of work is needed to consolidate our lead,” (in Fintech) now that Libra has become a reality.

China is known for mandating that citizens begin using mobile digital payments systems furnished by AliPay and WeChat.

The two systems now serve more than half-a-billion Chinese customers each, all while collecting data on them.

Before Libra was announced, many believed that Facebook was eyeing India and hoping to replicate WeChat and Alipay’s success there.

India is reportedly tepid about the prospect, however.

Peking University professor and rotating current chair of China’s cryptocurrency research institute, Huang Yiping, praised his country’s success in promoting financial inclusion via mobile finance, in contrast with the United States.

But while, “It remains unclear if Libra will succeed,” said Huang, “…the concept won’t disappear.”

“(I)t has sent a warning to China that its lead (in digital finance) is not a sure thing.”

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