The People’s Bank of China (PBOC), the Chinese central bank, was said to be conducting market-oriented research on the development of a central bank digital currency last week.
It was reported that such a program had been approved by the State Council, China’s Cabinet. Some insiders also pointed out that the program was a quick response taken by the Chinese monetary authorities to counterbalance the effect of Libra, a digital currency initiated by U.S. Internet giant Facebook on June 18.
As far as I know, the PBOC had shown a negative attitude toward digital currencies such as Bitcoin for quite a long time. Nevertheless, it appears to be showing a change of attitude toward Libra this time.
Libra is one of the 12 constellations in the Western zodiac. It means “scale” in Latin. Different from other digital currencies, Libra was laid with a more solid foundation before its kick-off. Its main initiator Facebook is the world’s largest social networking company and boasts more than 2.5 billion users from all over the world. Libra is also fully backed by a basket of bank deposits and government securities, and many other big-name payment companies such as Mastercard, Visa and Paypal. More importantly, Libra can directly realize point-to-point money transfer without the help of any other intermediary, making money transfer cheaper, more transparent, convenient and efficient, and better protecting the privacy of users.
In my point of view, the invention of Libra as a digital currency is a monumental event in human history. As one of the biggest economies in the world, China cannot be a mere on-looker in the development of Libra-like digital currencies. While accelerating efforts to introduce a government-supported digital currency of its own, China should also actively take part in the development of Libra, making it a tool to liberalize our minds and upgrade our online payment reform. Otherwise, more renminbi-denominated assets in China will very possibly be turned into Libra- and even U.S. dollar-denominated assets in the future.
According to Facebook, it aims to set up an independent body headquartered in Geneva to govern the operation of Libra in 2020. As we know, the future of monetary development is trending toward credit money and any possible role played by Libra could bring changes to the existing rules of the global monetary system. For instance, if Libra successfully evolves into a type of credit money, it would challenge our central bank’s monetary sovereignty, shake the present U.S. dollar-centered international monetary system and even reshuffle the global financial structure. Since Chinese Internet companies such as Alibaba and Tencent have already accumulated rich experience in online payment, they should be encouraged by Chinese regulators to cooperate with Facebook and even develop their own digital currencies, so as to get a share in the booming market and counterbalance the influence of Libra.
As for Chinese monetary authorities, they should liberalize minds to define the nature of the emerging crypto-currencies as a “substitute for cash,” not a speculative instrument. With such an idea in mind, they will be more open and inclusive toward cooperating with financial institutions, top universities and online payment companies all over the world to meet new challenges such as keeping financial stability under new circumstances and preventing online and other new forms of money laundering.
Systematic financial stability is of key significance for China. With the rapid development of digital currencies, many departments of the PBOC that were originally in charge of traditional cash management should be reshuffled and changed into online payment regulators because the use of cash is dramatically decreasing in China in recent years. To advance with the times, relevant laws and regulations should also be revised to legalize and standardize the management of digital currencies in the country.
(The author is the editor-in-chief of the Shenzhen Daily with a Ph.D. from the Journalism and Communication School of Wuhan University.)