Libra prompts China to accelerate digital currency plans

Out-Law News | 12 Jul 2019 | 1:15 pm | 1 min. read

China is accelerating its work on developing a new central bank-backed digital currency in light of the move by a number of payments and technology businesses to create a new global cryptocurrency, Libra, according to a report in the South China Morning Post.

According to the newspaper, Wang Xin, director of the People’s Bank of China research bureau, confirmed the push to develop a new Chinese cryptocurrency had been stepped up following the announcement of the Libra initiative, at a conference hosted by Peking University’s Institute of Digital Finance on Monday.

Under the Libra proposals, a new blockchain would, in time, provide a decentralised, permissionless framework for the processing of payments and exchange of assets, including a new Libra cryptocurrency, and remove many of the fees that currently apply to the processing of transactions.

The Libra cryptocurrency would be underpinned by a Libra reserve, which, according to the proposals, would help regulate the value of the cryptocurrency in line with changes to the value of real-world assets so as to minimise volatility. Balancing the value of the Libra currency against a basket of low-risk fiat currencies is envisaged under the plans.

At the conference in Beijing, Wang queried whether widespread use of Libra for cross-border payments could "have a large influence on monetary policy, financial stability and the international monetary system", and he expressed concern about the potential implications if the US dollar is the predominant currency underpinning the Libra reserve, the South China Morning Post reported.

"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," Wang said, according to the report. "But there would be in essence one boss, that is the US dollar and the United States. If so, it would bring a series of economic, financial and even international political consequences."

Agustín Carstens, head of the Bank for International Settlements, told the Financial Times recently that central bank-backed digital currencies could be issued "sooner than we think".