China and Russia could become a safe haven
China and Russia could become a safe haven for Facebook cryptocurrency
The U.S. and EU have misunderstood Libra
When Facebook published the Libra project document in mid-June 2019, the company looked pretty optimistic. The project was dictated by a humanitarian mission – servicing non-banking settlement transactions, reducing the cost of sending remittances and providing broad access to more efficient financial services for all.
But the regulators came in almost as fast as they did. The Central Bank of France has called for Libra to be controlled. Target groups were formed over the course of several days, hearings were scheduled in the U.S. Senate and Congress, and it became clear that Facebook would have to launch an awareness campaign if it wanted its project to be completed. Forex companies from the U.S. are unlikely to switch to this currency. In addition, it quickly became clear that the “untapped” markets in which the new cryptocurrency was intended were not as hospitable as Facebook might initially have thought.
Developing countries versus Libra
The developing world has shown similar hostility to this project. This may be because they saw the threat Libra posed to their national economies: in countries with predominantly monetary systems, an easily accessible digital currency could potentially become the default currency, a serious problem. Therefore, governments in developing countries have taken action against Libra.
Perhaps the biggest blow to the project so far has been the hostility shown by the Indian government. Even before Facebook, India had already worked to make it very difficult for its citizens to use the cryptocurrency. One piece of legislation even offered ten years’ imprisonment as a punishment for using or possessing cryptocurrency.
Thus, it was not a shock when Facebook announced that it would not launch Libra in India due to regulatory problems. However, the possibility that India will be excluded from the project will cause a serious blow to the project – previously the Indian money transfer market was supposed to be the main goal of the project – so Facebook’s report for the second quarter announced that “there can be no guarantee that Libra or our related products and services will be available on time or at all” was also not a big surprise.
“Acceptance of such currency in the market is subject to significant uncertainty,” the report says. “«… We do not have significant prior experience with digital currencies or blockchain technologies that could adversely affect our ability to successfully develop and sell these products and services. But although India may be out of the question, and the United States is not interested in this project either, there are other big markets in the world. After all, India and the United States are only the second and third largest country in the world.
Librais likely to be banned in China, too
Well, in fact, China does not seem to be interested in a new project, and given the country’s attitude towards crypto and Facebook, this is not surprising at all. Facebook was banned by the Chinese government in 2009, and the ban is still in place. In late 2017, the Chinese government introduced a number of bans on the cryptocurrency industry and the use of cryptocurrency in the country.
But Libra can take over the Chinese market if Facebook is ready to meet the possible demands of the Chinese authorities. The only possibility is that Facebook will make some kind of deal to include the Chinese yuan in the basket that supports Libra, or perhaps even introduce the Libra version only for the Chinese yuan, while giving the Chinese government full transparency and control over currency flows.
The use of foreign digital currency may be a threat
Surprisingly, China seems to recognize the fact that digital currency will be part of its future and the future world. The country has not taken a complete “closed” approach to the idea of a widely used digital currency – as long as the digital currency is under strict control.
The main proof of this is that the People’s Bank of China is reportedly building up its own digital currency in response to the threat Libra may pose to the state’s financial system. Initially, the NBK began to study the development of its own digital currency in 2014, but the project stalled for several years. But according to a July 8 report to the South China Morning Post, Libra has returned the country’s efforts in the field of digital currency.
NBK Director Wang Xin explained the country’s concerns about what Libra can do for China’s economy: “If the digital currency is closely linked to the U.S. dollar, it could create a scenario where sovereign currencies coexist with the U.S. dollar as central digital currencies,” he said. Wren Zhengfei, founder and CEO of the Chinese telecommunications giant Huawei, also called for the creation of a Chinese competitor for Libra. “China can also issue such a currency on its own,” he told the Italian news publication L’Economia. “Why wait for the others to release it? The power of the country is always stronger than the Internet company.
Russia takes a different approach
For several years Russia has been studying the possibility of creating its own digital currency, CryptoRuble. It seems that the country does not see Libra as a competitor to the country’s national currency, rather Libra will be considered as any other digital currency. Although the Russian market is only the 9th largest in the world in terms of population, the country’s status as a global power may mean that its political stance on Libra has some “influence” on the project. But it seems unlikely that Libra will have a big impact on the decision of the country to launch (or not to launch) CryptoRuble. The project seems to be moving forward, although its release date and other details about its future are still unclear.
Libra can finally get regulators to do something about the cryptocurrency industry. It is possible that even without Libra, regulators could continue to create rules for the industry, and that nationally supported national currency creation research could be undertaken. But it is also possible that the cryptocurrency industry may come first (more or less). Neither the Chinese government nor state-supported Chinese companies, such as those that do not want to have a competitor in the RMB, which works well in China. At the same time, initiatives such as CryptoRuble provide some evidence that the industry will continue to move forward regardless of whether Libra is released or not.