Facebook recently announced its project Libra, which is all about releasing a new cryptocurrency to buy and sell goods online. Hearing this, Beijing investors are all set to work to plan on the release of their very own Chinese cryptocurrency.
The South China Morning Post confirmed the news that the People’s Bank of China is now officially looking into cryptocurrency since Monday after it was formally banned two years ago. If this is true, then WeChat, the Tencent owned app would be the right place to start because it is a messaging as well as a digital payment app.
The Chinese are worried that if Libra takes off, then all their cross border payments, monetary policies, and financial sovereignty would be challenged by this.
The director of Chinese Central Bank’s Research Bureau,Wang Xin, at a conference in Peking University’s Institute of Digital Finance stated that Libra is being used widely for payments. But will it work as money and have a great influence on financial stability, monetary policy, and the international monetary system?
“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?”
WeChat has a metric of 1.1 billion active users monthly, while Facebook stands with almost double the value at 2.3 billion. Social media companies like to use this metric to know exactly how many people use the account regularly as to how many have an account but doesn’t use it actively.
WeChat already has a digital banking system in place except for the fact that it works with Chinese Yuan and is associated with Chinese bank accounts. Tencent’s WeChat Pay is said to have about 900 million users, since its launch in 2013.
WeChat may have been growing actively in China, though Chinese expats and travelers commonly use it. It is the biggest up until now, Alibaba’s Alipay.
Alipay is owned by Alibaba’s financial arm called as Ant Financial, which the largest privately held Fintech Company. Even though WeChat has a social media platform along with its digital payments sector, both WeChat and Alipay have a near equal market in China.
According to Facebook’s white paper release, Libra is all about linking multiple governments and currencies which will be governed by a Switzerland based nonprofit consortium. It is said that more than twenty big shot companies like PayPal, MasterCard, Uber, and Visa will be going to join Facebook in this new venture.
China is now on its toes, wanting to know what is precisely being planned and who all will be in this new venture. Wang is concerned about where dollars will come into picture in this and about its consequences on the economic, financial, and even on the international political front.
“If the digital currency is closely associated with the US dollar, it could create a scenario under which sovereign currencies would coexist with US dollar-centric digital currencies. But there would be in essence one boss, which is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences, said Wang Xin”
He also fears that coping with this kind of digital currencies, many other countries will have to release or resort to using new digital currencies.
To beat this and stay on top of their game, China has opened a research initiative on digital finance, which will harness top scholars from house Chinese Universities to accelerate this research.
Also, the People’s Bank of China is working along with market institutions on creating central bank digital currency. About Libra being a success or not is not evident yet, but it has warned China enough to keep them working until they come up with something to beat this.