China Is Racing to Launch a Digital Currency Ahead of FB’s Libra

The People’s Bank of China (PBoC) is almost ready to launch its government-backed digital currency, official sources say.

An Aug. 20 report from the CPC-owned English-language news portal China Daily further revealed that the central bank digital currency (CBDC) may have been influenced by the unveiling of Facebook’s planned cryptocurrency, Libra. 

‘Inspiration from Libra’

After five years of research and system development work since 2018, the PBoC is almost ready to launch its CBDC, the deputy director of the bank’s payments unit Mu Changchun revealed at a forum last week. 

Trials for the currency have been ongoing and the institution is reported to be testing multiple approaches for the project. If things proceed smoothly, the PBoC expects it could launch the currency sooner than Libra. 

The latter’s recent announcement is notably reported to have influenced the PBoC’s original design for its planned CBDC. 

Yang Dong — director of the Research Center of Finance Technology and Cyber Security at Renmin University of China — told China Daily that the announcement of Libra had sparked debate among Chinese regulators and motivated the project’s designers to involve more non-governmental institutions in the currency’s development and issuance process. He stated:

“Further testing is needed before officially launching the Chinese CBDC, gaining inspiration from the Libra.”

While not revealing specific names, Yang indicated that the next round of CBDC trials will involve both the central bank and private- and state-owned firms and will focus on non-governmental and cross-border applications.

CBDC expected to have many positive impacts

China UnionPay chairman and former PBOC official Shao Fujun told China Daily that the CBDC “will have lots of positive impacts, including tracking the money flow in economic activities and supporting making monetary policy.”

It nonetheless faces challenges such as global coordination as regards monetary and exchange rate policy, he noted.

China’s digital legal tender will be controlled by the PBoC and 100% backed by the reserves commercial institutions pay to the institution, an unnamed central bank official indicated. Citizens will be able to exchange the currency in commercial institutions.

At the forum, Mu further highlighted that currently, several different designated institutions are taking different technical routes for developing the CBDC and electronic payment infrastructure. 

He added that the CBDC’s organizational structure is to some extent similar to that of Libra’s.

As reported just yesterday, top crypto exchange Binance is launching an open blockchain project — focused on developing localized stablecoins worldwide — that also appears to compete directly with Libra.