Almost immediately after the Libra hearing in the US Congress last October, China’s President Xi Jinping announced that the country would be fast-tracking its own digital currency.
Now, a former deputy governor of the People’s Bank of China is urging China to rethink its response to Libra.
‘Do not rush a CBDC’ – China to rethink its response to Libra
While it may have seemed like a knee-jerk reaction to Facebook’s plans for a global digital means of exchange, China has been researching its own state-backed digital currency since 2014.
However, when Facebook unveiled its plans for Libra last year, it apparently awoke fears among central banks and governments around the world.
In fact, according to the South China Morning Post (SCMP) on Sunday, debate continues in China over whether (and even how) China’s central bank should issue its own digital currency.
Officials are concerned that a popular digital currency like Libra may further enhance the dominant role of the US dollar in the digital age. These concerns are particularly prevalent since the Chinese yuan is not included in the basket of underlying assets backing Libra.
Even taking all this into consideration, a former central bank deputy governor Zhu Min is urging China to rethink its response to Libra.
“I think it’s critically important to join the discussions and take part in coordinated global regulation of Libra,” Zhu told Sina.com.
He added that the central bank’s digital currency research scheme, which is officially called the Digital Currency Electronic Payment, is a “natural process”.
This appears to suggest that there is no hard and fast schedule for a launch date of China’s central bank digital currency (CBDC).
Apparently, Zhu is not the only one calling for a global regulatory framework (to include China) that covers digital currency.
A global regulatory framework covering digital currency
Zhu is among a gathering group of researchers, governers, and economists warning China to reconsider its response to Libra.
They believe that, since digital currencies are not restricted to just one country, nations should work together to find a path forward to regulate corporate coins and other threats such as Libra. They argue that China should be among this global coalition rather than branching off on its own.
Former researcher at China’s State Council Development Research Centre (currently serving as chief China economist for the Hong Kong stock exchange) Ba Shusong echoed Zhu’s argument.
He said that a multilateral institution was needed to oversee digital currencies such as Libra that have the power to challenge the existing financial system and even reshape entirely.
According to the SCMP, Ba spoke at a seminar in Hong Kong earlier this month saying that there were simply too many issues around digital currencies because of their reach outside national borders.
He warned that the growth of CBDCs could spark tensions among central banks and regulators around the world as they struggle to manage their foreign exchange controls. He also said that projects such as Libra raise concerns over its use for illicit deeds such as money laundering.
“You would need to first improve the regulatory framework for [financial] technology,” Ba said.
“There is a need for global cooperation for an alternative regulatory framework.”
Five countries collaborate against Libra
Last week, the Bank of International Settlements (BIS) revealed that it had formed a group of central banks from five key countries to “share experiences as they assess the potential cases for central bank digital currency”.
Among the collaborating central banks are Sweden, Canada, Great Britain, Japan, and the European Central Bank.
The former head of the Bank of Japan’s (BOJ) division overseeing payment and settlement systems Hiromi Yamaoka said that this showed the significance of Libra and how it has already sparked off global competition from central banks looking to protect the interests of their own currencies.
Yamaoka stated: “The latest decision is not just about sharing information. It’s also an effort to keep something like Libra in check.”
He continued: “Something like Libra would make transaction costs much cheaper. Major central banks need to appeal that they, too, are making efforts to make settlement more efficient with better use of digital technology.
“Digital assets may well be instrumental tools but they need the backing of well-thought-out government policies.”
Meanwhile, Libra loses more key members
As central banks globally unite to discuss a response to Libra and other corporate coins, the Libra Association lost yet another member after British telecoms giant Vodafone pulled out.
This follows other key backers including PayPal and Mastercard falling away amid mounting regulatory pressure.
While the Vodafone exit is a blow to Libra, the door hasn’t been closed. A Vodafone spokesman said in a statement: “We will continue to monitor the development of the Libra Association and do not rule out the possibility of future cooperation.”
It seems that perhaps for now at least, the race for CBDCs may become a marathon rather than a sprint.