While the world mostly views Facebook’s Libra with guarded skepticism, the central bank of China has decided to take it on head first. The People’s Bank of China (PBOC), according to the South China Morning Post, is going to introduce its own digital currency due to the perceived risks Libra poses to China’s financial system.
The director of the bank’s research bureau, Wang Xin, asserts that “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?”
He adds, “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.”
Because of Xin’s convincing speech, China’s State Council has already given its approval for a digital currency project to be considered more seriously. It has given the PBOC the authorization to start working with financial institutions and market participants in order to create a draft for an official state-backed, central bank-issued cryptocurrency.
Among those to work on the project will be Peking University, Zhejiang University, Shanghai Jiao University and Renmin University. The initiative will be chaired by Peking University professor Huang Yiping, who asserts, “It remains unclear if Libra will succeed… but the concept won’t disappear. But it has sent a warning to China that its lead [in digital finance] is not a sure thing.”
China still doesn’t accept crypto. It has a complete ban on all listings and trading of digital assets; however, it apparently sees enough legitimacy of Libra being used as a currency to want to intervene on an official level. It might not be the only one, either. If Libra makes it into the wild on any large scale, more central banks could decide to issue their own digital currencies. It could also lead to the creation of a single bank-issued digital currency that could be designed and implemented by a conglomeration of central banks from around the world.
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