As economic and political tension between the U.S. and China has recently been rising, the association backing Facebook’s planned Libra stablecoin cryptocurrency finds itself navigating through the superpowers’ high-stakes drama.
This week, Bloomberg reported that Facebook delivered a series of written responses Senator Mark Warner (D-VA), the current Vice Chairman of the U.S. Senate Intel Committee, regarding the Libra — a proposed “basketcoin” set to be underpinned by a series of major fiat currencies.
Sen. Warner had reportedly asked Facebook to provide answers on a series of concerns, not least among them being whether the Chinese yuan was going to be included in Libra’s currency basket. Notably, a trade war has recently heated up between the U.S. and China, with the former wanting to defend the dollar’s global position and the latter wanting to de-dollarize.
In their response to Sen. Warner, Facebook said the Libra Association — the Swiss-based body that governs the Libra and that currently has nearly 30 members — would have the final say on what currencies end up making it into the Libra’s basket of reserves.
Still, the social media giant conspicuously omitted mentioning the yuan as an initial contender to back the Libra in answering Sen. Warner. Instead, the company reportedly cited the dollar, the euro, the Japanese yen, the British pound, and the Singapore dollar (SGD) as currencies that are likely to help comprise Libra’s basket.
The first four of those major currencies come as no suprise, naturally. It’s the smaller SGD that is the standout of the bunch, though it’s no slouch either in being among the top 20 most traded currencies in the world.
China’s Concerns Coming to Fruition?
Of course, Facebook didn’t deliver Sen. Warner a “hard no” on turning to the yuan for the Libra. Still, the implicit possibility of the dollar being included in the basket while the yuan is excluded seems to play right into concerns expressed by top Chinese officials in recent times.
For example, Wang Xin, a senior researcher at the People’s Bank of China (PBoC), said earlier this year that the central bank was worried the Libra could further boost the U.S. dollar’s dominance:
“If the digital currency is closely associated with the U.S. dollar, it could create a scenario under which sovereign currencies would coexist with U.S. dollar-centric digital currencies. But there would be in essence one boss, that is the U.S. dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences.”
Those anxieties have led to the PBoC accelerating its own plans for a Libra-like central bank digital currency (CBDC) that could beat Facebook’s global-minded Libra to the punch. In a public lecture given last week, Mu Changchun — the leader of the PBoC’s Digital Currency Research Lab — said the coming digitized yuan was about ensuring China’s independence.
“It is to protect our monetary sovereignty and legal currency status,” Changchun said of the project.
Facebook May Not Embrace Yuan, But Tether Does
Tether’s USDT dollar stablecoin has proven to be a controversial hit in the fledgling cryptoeconomy. Now, the company has moved toward the yuan in formally unveiling its CNH₮ yuan-pegged stablecoin.
Offshore Chinese yuan (CNH) added to our basket of supported currencies, new stablecoin CNHt now available!
— Tether (@Tether_to) September 9, 2019
“CNH represents a further expansion of Tether’s capabilities in facilitating the digital use of traditional currencies, such as US dollar (USDT) and euro (EURT),” Tether said in a September 9th announcement.
It remains to be seen if the CNH₮ can become as popular as Tether’s other stablecoin tokens, or whether the ruling Chinese Communist Party will quietly abide a digital yuan offering that is not under its direct control. But the Chinese nook of the cryptoeconomy is large, so Tether undoubtedly thinks the risk is worth the reward.