China launching the e-Yuan way before Facebook’s Libra
The world got all cryptonised over Facebook’s plans to launch its now famous stable coin Libra that it forgot all about China’s own plans: e-Yuan.
The country’s future digital currency will beat Libra to the global stable crypto market as they have no regulatory issues to grapple with unlike what is happening in the US, where regulatory bodies and global banks are doing what they can to delay Libra’s launch.
They say Libra will have detrimental implications on global financial systems and carries inherent risks to future e-borrowers that need to be addressed.
China has no such qualms. They are ready to e-go.
Digital Rinminbi, here I come
China may debut the breakout fintech innovation of 2020, according to Reuters. Beijing is primed to launch the world’s first digital sovereign currency.
The initial roll out looks cautious, focusing on consumer spending. Deploying the new technology more widely in the country’s banking system could be the disruptive next step.
A 2019 survey from the Bank of International Settlements found that 70% of the world’s major monetary authorities are studying their own digital versions of money. The People’s Bank of China, worried about private alternatives like Facebook’s Libra and Bitcoin, is likely to be the first major economy to launch its own.
Details are scarce, but Mu Changchun, the head of the PBOC’s digital currency research institute, hinted in November that an “e-yuan” will be distributed via commercial banks, Tencent, and Alibaba-backed Ant Financial, national giants of online payments.
Authorities’s unprecedented ability to track and monitor online spending flows could be a powerful tool against fraud, tax evasion and money laundering but also clear China’s financial system from up to 2.4 trillion yuan ($341 billion) of officially recognized bad local debt.
This bad debt emanates from a widespread practice of pledging the same asset – bonds, deposit certificates, and shares – as collateral for multiple loans. Distributed ledgers could be more effective at detecting this practice. The People’s Bank of China (PBOC) will become China’s next fintech star. PBOC have said the digital renminbi will bear similarities to Facebook’s LIBRA plan. China’s digital renminbi will apparently be similar, but controlled by a central bank.
Libra and other replicas
Libra was promoted at the “global” digital currency project.
Libra has triggered strong reactions, largely critical ones, from central bankers across the globe.
But in 2020, it appears that cryptos are poised to reenter the scene in a big way.
Libra is about promoting “financial inclusion” and helping people “lift themselves out of poverty,” Zuckerberg told the US House of Representatives in October.
He predicted then that China is “moving quickly to launch similar ideas in the coming months”.
“Libra will be backed mostly by dollars, and I believe it will extend America’s financial leadership as well as our democratic values and oversight around the world,” he said.
The problem is many people don’t trust Facebook with their private data breaches with a very recent reminder just surfacing, and see it as a threat to democracy, or both.
The Libra Association, the nonprofit created to manage the currency is made up of 20 other firms in addition to Facebook, will manage a “reserve” of government-issued money that is supposed to back each digital unit and keep the currency stable. Half of that reserve will be US dollars, and the other half will be made up of British pounds, Japanese yen, euros, and Singapore dollars.
Worried US policymakers say they can’t even tell what Libra is, much less how to deal with it.
In addition to China, Iran and Russia also appear interested in using digital currency as the basis for a parallel financial system that the US can’t control. The governments of Venezuela and North Korea have apparently already turned to cryptocurrency to evade sanctions.