If Chinese officials are acutely aware of one thing, it most certainly is their country’s constantly evolving position in the world politic and what might pose a competitive threat to that position at a later date. It is therefore not that difficult to understand that, after Facebook and its Libra Coin received a tongue lashing from just about everyone and their grandmother about potential privacy violations, the Chinese government quickly began to assess the threat that Facebook and Libra could pose for their future plans.
Long before the IMF’s Christine Lagarde ever suggested the idea of a Central Bank Digital Currency (CBDC), one that is issued and controlled by the central government, it has been known that China has been actively investigating the possibility of just such a proposition. Crypto advocates shun this concept with a passion, since it contradicts what cryptocurrencies are supposed to be about, i.e., decentralized assets that “put financial power back in the hands of cryptocurrency users and traders.”
The prospect of Libra Coin has now changed the current dynamic. Per one report:
The notion could be that China is looking to relieve itself of any potential competition. Legislators have been examining the prospects of creating its own cryptocurrency for the last five years. That means since 2014, it’s been discussing the properties of a national cryptocurrency, but thus far, these plans have failed to produce anything significant, and Libra could change this according to some experts.
Wang Xin, the research director of China’s central bank, made it known at a recent conference that Facebook and its Project Libra have changed the collective thinking behind their current development efforts. He noted that regulators across the globe are suddenly concerned over what a private cryptocurrency run by a private corporation could do to their domestic consumers and that China needs to rush up its timetable:
We will keep a close eye on the new global digital currency. We had an early start… but lots of work is needed to consolidate our lead.
Surprisingly enough, China has also had a love/hate relationship with Bitcoin and all things crypto for several years. It has banned the use of cryptos, exchanges, Initial Coin Offerings, and even trading, but resourceful Chinese investors have found several ways to bypass restrictions, either through Virtual Private Networks (VPNs) or other ways of accessing offshore exchanges. The government is also threatening a full ban on crypto mining, due to environmental concerns, but it has delayed, possibly because over 50% of Bitcoin mining revenues originate from mining operations in the Middle Kingdom.
If China does go through with its plan for a CBDC system, the Chinese government would process each and every transaction on its centralized network. In other words, “Big Brother” would have its eyes on every consumer financial exchange of value in the country. Chuanwei Zou, a chief economist at Bitmain, concludes that:
China relies on the mobile payments sector immensely. We have had a long lead-time [over Libra] with the success of WeChat and Alipay, but Libra represents a huge threat on mobile payments.
Martin Chorzempa, a research fellow at the Peterson Institute of International Economics, shared similar sentiments as to why Libra is such a threat:
If Facebook can attract and turn a good number of its current users of Facebook and WhatsApp into Libra coin holders and users, it could immediately leapfrog all of what China has done in terms of building up users.
Chorzempa then summarized the situation:
The problem for China is if Libra is truly successful around the world and it’s banned in China, then China is in a losing position, and its companies might be in a disadvantage in the digital economy versus companies that are able to accept Libra. That’s quite a scary prospect.