China cannot be absent from the era of global digital currency competition

By Wang Jiamei Source:Global Times Published: 2019/6/24 20:58:40


Illustration: Luo Xuan/GT

Last week, Facebook released an official white paper for its cryptocurrency project Libra, a blockchain-powered stablecoin expected to arrive in 2020.

According to media reports, the social networking giant has already linked with 28 partners including Visa, Mastercard, Uber, and Paypal, to form Libra Association, which will run internet nodes to validate transactions. The company hopes to have 100 members by Libra's launch date.

Facebook's plan for a new global currency has triggered heated discussion surrounding blockchain technology and cryptocurrency. Some critics asserted that Facebook's digital currency could be the most significant event in the cryptocurrency field since Bitcoin's launch in 2009. When Libra is released, digital currency is expected to become the main battlefield for financial technology and the focus of digital economic competition.

What remains troublesome is how Chinese companies will be absent from such a landmark event. In the past, the US established dollar hegemony to have global finance and currency circulation under its control. 

What would happen if the same story repeated itself in the digital currency era? If China cannot participate in this new phase of the digital economic revolution, then it may find itself in a passive position within currency competition, not to mention it could lose its advantages within the internet and financial technology sectors.

It is true that traditional financial institutions and technology companies have tried to launch their own digital assets or blockchain-powered services these days. In February, JP Morgan announced the first US bank-backed cryptocurrency JPM Coin. However, none of them are expected to be comparable to Libra.

Regarded as an upgrade of blockchain technology and digital assets, Libra is different from existing cryptocurrencies. Unlike Bitcoin or others, Libra's value will be backed by currencies and securities to make it more reliable and stable. And because of its hard asset reserves, it would not only impact the digital economy but influence international financial systems. 

With the announcement of Libra, Facebook has revealed it has the seigniorage power to create a new currency for 2.7 billion people worldwide, making it an independent central bank within the digital economy.

Needless to say, Libra will face challenges and obstacles, in particular scrutiny from international regulators and policymakers, on its way to becoming a global currency. There is a high probability that Facebook will try to reach a deal with US regulators in an effort to safeguard against regulatory pressure. 

Once this alliance is formed, Libra will become the de facto representative of the dollar in the global digital economy, where the dollar lacked dominance in the past. With Libra, the US could obtain a significant first-move advantage in digital economic competition, and it will be hard for governments to block Libra's penetration within their digital economies.

China must be involved in this round of digital economic competition, given the fact that digital currency will become an inevitable trend, bringing profound changes to the digital economy and global technology, finance, capital and economic structure. 

After decades of effort, Chinese internet companies have made achievements in mobile payment and e-commerce sectors, bringing the country's digital economy to more than 30 trillion yuan ($4.36 trillion). In this sense, China is capable of participating in the next stage of digital economic competition. 

However, as digital currencies can easily be used for illegal financial activities and by terrorists and criminals, stringent regulatory control is indeed necessary. In China's fintech sector, tough regulations are also needed for the purposes of financial stability. The regulator's cautious approach could explain why the Chinese fintech industry appears slow to respond while US tech giants achieve fast progress in advancing digital currencies. Yet, as the era of global digital economic competition approaches, it is essential for both domestic industries and regulators to have more dialogue and understanding, even encouragement, on digital currency. Otherwise, China could risk falling behind in the new financial landscape.

The author is a reporter with the Global Times.


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