There is a maxim in corporate strategy that suggests that you may never be able to guess accurately guess how the market may receive a new product offering, but the moment the announcement is made, the consequences and reactions from competitors become abundantly clear immediately. Such may now be the case with Facebook’s Project Libra. Aside from the fact that regulators and government authorities in both the U.S. and Europe are not exactly pleased, it is now suspected that Chinese officials are not taking the project lightly, as well. The news now is that they are putting a Central Bank Digital Currency (CBDC) project on the fast track for immediate development.
According to one report:
According to bank representatives, Facebook’s Libra could introduce problems for the local market as it’s planning to provide global payment opportunities. Since Facebook has access to nearly three billion people worldwide, the bank is fearing that Libra will somehow tamper with local monetary policy. Furthermore, it’s expected that Libra will be backed by the USD, making it even more dangerous to the yuan.
China may now have become the manufacturing capital of the world and, within that capacity, it has learned how to reverse engineer much of the technology that has been obliquely shared, but when it comes to allowing foreign based services, such as Google and PayPal, to interact with its citizenry, its officials have balked. In each case, they moved quickly to develop nationally controlled services that mirror the successes in the West, so to speak. Facebook has been no different, it seems.
To date, the Chinese government has reacted negatively to all things crypto. It banned crypto trading some years back, driving national exchanges to relocate offshore. The story goes that it feared that crytocurrencies might pose a problem for domestic monetary policy and inversely impact the national currency. More recently, the government also placed a ban on mining activities, but it has yet to crack down on creative traders that have found a way to trade in OTC markets by way of Virtual Private Networks (VPNs).
With these bans in place, the word is that officials would like to follow the path of a “CBDC”, a program that both Christine Lagarde at the IMF and the World Bank have openly endorsed. The plan would also incorporate blockchain technology to maintain the records for the electronic or “digitized money”, which for now will not be considered a cryptocurrency. While insiders posit that Libra poses no threat to China, their officials seem more than bothered by the potential influence that Libra could bring to their domestic shores. Its diverse customer base in excess of three billion individuals can be imposing, especially when and if it does not comply with local rules and regulations.
China’s neighbors, India and Russia, also seem perplexed by cryptocurrencies. Both governments have waffled on bans and quasi-bans for the past few years. Russia appeared to be headed for a national crypto program, a clever way to get around international sanctions, but observers say that the attractiveness of this idea has passed. There have also been “on again, off again” discussions of new and improved crypto guidelines, but the issue remains up in the air. In any event, Russian officials have not spoken out, as yet, about the Libra project and its potential implications.
Speculation is already rampant in China that either Tecent’s WeChat Pay or Alibaba’s Alipay would be the platforms of choice, since both have nearly one billion users each and near-equal market shares in the Chinese payments market. These programs are also Yuan-based. Facebook’s stablecoin approach will more than likely favor the U.S. Dollar, another sore point with Chinese officials.
According to Meng Liu, an analyst with Forrester in Beijing:
Libra is unlikely to succeed since the obstacles it faces are overwhelming.” Will Martino, a founder and CEO of Kadena, which distributes its own form of blockchain platform, echoes similar sentiments: “Facebook is really trying to do this, and it requires an incredible amount of hubris. I find it all unfeasible. It looks like they are trying to declare themselves a sovereign state with their own currency… and that’s crazy.