With China reportedly speeding up the development of its national currency, the digital yuan, some researchers and government officials have called on the Chinese government to exercise caution. While Facebook’s Libra might be a threat, there are suggestions that the government should instead work with global regulatory bodies to regulate cryptocurrencies such as Libra.
A Global Regulatory Framework for Cryptocurrency
According to a recent report by the South China Morning Post, a former deputy governor of the People’s Bank of China (PBoC), Zhu Min, has advised the country to exercise caution in its response to Facebook’s Libra. Instead, the former central bank official thinks the Chinese government should collaborate with other regulators to regulate the stablecoin by the Menlo Park-based social media giant. In Zhu Min’s words:
“I think it’s critically important to join the discussions and take part in coordinated global regulation of Libra”.
China seems to be the most active country whose central bank is keen on issuing its own national digital currency. Since the announcement of Libra by Facebook back in June 2019, governments and regulators globally have called for stricter regulations of the crypto sector.
The Chinese government, like many other governments, is worried that a stablecoin from a private company like Facebook could threaten sovereign currencies. China is especially concerned that Libra’s popularity could further strengthen the dominance of the U.S dollar.
However, Zhu Min is not the only voice urging China to liaise with other countries to create a universal regulatory framework for virtual currencies. Ba Shusong, Chief China Economist for the Hong Kong Stock Exchange, collaborative efforts from different jurisdictions are important in regulating cryptos such as Libra.
“You would need to first improve the regulatory framework for [financial] technology. There is a need for global cooperation for an alternative regulatory framework”.
The economist further said that the growth of cryptocurrencies could heighten the tensions among central banks and regulatory bodies. This is because they are capable of weakening the control central banks have over foreign exchange.
Shusong’s sentiment is similar to the statement made by Hiromi Yamaoka, a former executive of the Bank of Japan (BOJ), in August 2019. According to Yamaoka, Facebook’s Libra could diminish the central banks’ control over monetary and banking policies and called for regulators globally to address Libra.
China Still Anti-Crypto
While blockchain technology enjoys an appreciable level of acceptance from the Chinese government, the same sentiment is not extended to bitcoin. Following the blanket ban on bitcoin trading and ICOs back in 2017, the government stance on crypto is still negative.
In August 2019, however, China announced its readiness to launch its central bank digital currency (CBDC) after five-year research. The Chinese government reportedly fast-tracked the process in the wake of Facebook’s Libra announcement.
Later in October 2019, China stated that it was in the process of launching the country’s Digital Currency Electronic Payment System (DCEP), powered by DLT.