The specter of Facebook’s cryptocurrency continues to be soberly scrutinized by some of the world’s most influential authorities.
The latest development in that thread comes from China, where the social media titan’s coming Libra is being taken seriously by officials — enough so, in fact, that the country’s central bank may digitize its yuan currency partly in response to the so-called basketcoin’s insurgent advance.
That’s per Wang Xin, head of the research division at the People’s Bank of China (PBoC), who said on July 8th during a talk at Peking University’s Institute of Digital Finance that the central bank’s experts were giving “high attention” to how the Libra could affect the international monetary system and thus the yuan.
Well, What’s in the Basket?
Wang and his peers are reportedly keen on learning what fiat currencies will comprise Libra’s basket.
The crypto will be a stablecoin, but unlike other popular stablecoins pegged to a single currency like the dollar or the euro, Libra will be underpinned by a series of foreign currencies simultaneously. That means the coin’s price should prove stable over time, even if its value isn’t pegged to a single arbitrary mark.
To date, Facebook has been mum on what assets will end up in the basket. Speculation has swirled around likely contenders, for example conventional safe haven currencies like the U.S. dollar, the Swiss franc, and the Japanese yen.
So with the dollar presumably all but certain to figure into the basket, Wang and other officials at the PBoC want to know how much it will figure in. As Wang said on Monday:
“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.”
The concerns are unsurprising amid the current political climate in Beijing.
The Chinese Communist Party (CCP) is currently undertaking a long-term dedollarization campaign, hoping to boost the yuan’s prospects of becoming the premier international currency through backing yuan-denominated deals and assets.
If Libra poses a major threat to the yuan’s ability to advance on the dollar, the PBoC and the CCP most certainly want to know and to have a chance to react.
In this context, the digitization of the yuan would put the currency in a more immediate position to be an alternative — or direct challenger — to Libra. And preliminary work on a digital yuan has apparently already begun, with Wang having noted the State Council had granted the PBoC permission to start developing a central bank digital currency, or CBDC.
Notably, the central bank is well versed in the subject, with the institution having started researching the prospects of CBDCs five years ago. The bank may need to hasten its work if it wants to keep apace with the forthcoming Libra, however.
Pressure Picks Up on Facebook, David Marcus Responds
Beyond PBoC bankers, legislators and regulators around the world have been turning up the heat on Facebook over the company’s plans to launch its own money.
For example, last week U.S. Congresswoman Maxine Waters sent Facebook’s leadership a letter in her capacity as Chairwoman of the House Financial Services Committee, therein asking the company to halt its development of the Libra so Congress could hold hearings before it was finished.
The social media company’s blockchain lead David Marcus has since publicly commented on the growing regulatory pressure, arguing it’s undue because the mature Libra will be beyond the company’s control. “Facebook will not control the network, the currency, or the reserve backing it,” he said.
