Early this month, an official at China’s central bank said the bank is nearing the launch of its digital currency.
Bloomberg reported Monday August 12th that Mu Changchun, deputy director of payments unit at the People’s Bank of China (PBoC), said its team is close to completing the task of creating the systems needed to support a digital yuan offering.
Although the PBoC’s project has been going for one year, recent news from Facebook has changed the motivation of the PBoC. In mid June of 2019 Facebook announced details of its Libra cryptocurrency project.
The former governor of the PBoC, Zhou Xiaochuan said:
“Libra has introduced a concept that will impact the traditional cross-border business and payment system."
“It (Facebook’s Libra) would pose a threat to existing cross-border payments systems and could weaken national currencies”
Digital currencies such as, bitcoin are easily exchangeable through international parties. Eliminating the walls and the drag of having to visit a western union or remittance office, and avoiding hire wire transfer bank fees. Exchanging bitcoin is quick and easy between friends and strangers thanks to the numerous amounts of services offered.
Zhou suggested early in July 2019 that Chinese “commercial entities” could be allowed 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.
China seeks to bypass the walls as well by allowing its currency to transcend borders with minimal regulations.
If China can nationalize and back a Digital coin that is much more convenient for international trade, it can wrangle power form the U.S Dollar as the de facto and preferred currency for trade. Anything for a leg up in the trade war.
Speaking on the Global Coin Research Podcast in late August of 2019, Circle’s CEO, Jeremy Allaire said, the U.S was lagging behind China’s development of a national currency and that it could alter the way Western companies transfer payments.
Allaire said in the same podcast:
“A digital currency version of renminbi that runs on software platforms that can be run over the internet, it really creates an opportunity for China and Chinese companies…and bypass the western banking system.”
He also said,
“I think the broader concept of the internationalization of the yuan and the belt and read initiative and the desire to expand China’s role as a trade counter-party…digital currency is a natural path for that to grow.”
While news of PBoC’s digital currency isn’t new the timing for a launch could not be more strategic.
Currently Facebook’s Libra faces a battle against regulators before they can get Libra off the ground.
The company initially said it aims to launch Libra in the first half of 2020, but the push back from regulators and politicians has called that timeline into question.
Mark Zuckerberg, Facebook’s CEO, said,
“We’ve opened a period of, however long it takes to address regulators and different experts and constituents’ questions about this and then figure out what the best way to move forward is.”
If China (specifically the PBoC) can beat Facebook's Libra to the finish line while launching a competitive product, they can mitigate the impacts on electronic transfer and trade Libra will surely cause. Furthermore, the PBoC may perhaps they can push China into a favorable position in future trade wars as well.
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