Faced with the possibilities and threat posed by Facebook’s Libra cryptocurrency project, China’s central bank should rethink its plan for a national digital currency, according to its former head.
As reported by the South China Morning Post, former People’s Bank of China (PBoC) governor Zhou Xiaochuan said at an event in Beijing this week that, with its Libra offering, Facebook had shown that there is potential for a “strong” global cryptocurrency that can be exchanged for fiat currencies.
While Libra may help developing countries improve their payment systems, Zhou said, it would also pose a threat to existing cross-border payments systems and could weaken national currencies.
“Libra has introduced a concept that will impact the traditional cross-border business and payment system.”
In the face of this new risk, even if not a major one for China, the government should “make good preparations and make the Chinese yuan a stronger currency,” according to Zhou.
One way forward would be to enable non-specified “commercial entities” to issue digital yuans, as Hong Kong allows with its dollar.
The system in Hong Kong allows several banks to issue HKD banknotes backed by U.S. dollar reserves, while the de facto central bank, the Hong Kong Monetary Authority, works to maintain a peg to USD.
The Post spoke to a senior analyst at Orient Securities, Chen Dafei, who said he interpreted the comments as meaning that major tech firms like Alibaba and Tencent – which have already built out sizable payments networks – could potentially take part in the issuance of a national digital currency.
Previously, when in charge of the PBoC, Zhou backed the work on developing China’s digital currency, saying at one time that its launch is “inevitable.” While that work has been ongoing for at least several years, there have been no signs of an impending launch.
If Libra goes ahead, despite all the regulatory issues it’s currently facing, that may be set to change.
Zhou Xiaochuan image via Wikimedia Commons