We recently responded to questions from Finance Magnates, an online news outlet regarding Facebook Libra and China's response to it in particular. Here are the more interesting parts of their Q & A with our Founder and CEO, Gautam Sampathkumar.
How likely is it that Facebook's Libra will be launched in China?
The chances of Libra being allowed to operate in China are close to 0. This comes at a particularly sensitive time monetarily for the Chinese government. One of their major goals right now is to stop the ability of their citizens to move their savings out of the country, aka capital flight.
Could the fact that Facebook Libras backers are western countries turn China off from wanting to allow Libra?
Definitely. Given the ongoing Trade war between China and the US, not to mention the fact that it is a private company with a checkered past, Facebook, and not even a sovereign government that is trying to bring this to market, the chances of it being Dead-on-arrival are quite high.
How likely is China to allow WeChat or another Chinese social media company to launch its own cryptocurrency?
This might make more sense for them to do than allow Facebook Libra in. This allows the cryptocurrency to enter the market under the guise of being a privately issued token by an app as popular as WeChat, whilst being monitored and controlled by the Chinese government behind the scenes.
What is China's position on Stablecoins issued by third-party companies in general?
One of the Chinese government's first order of business currently is to prevent capital flight. Anything that falls within the category of allowing its citizens to move from the local currency to another asset is frowned upon. Third-party Stablecoins, ICO tokens and of course Bitcoin, Ethereum and others fall into this category and have either been either outright banned or severely curtailed.
How likely is the People’s bank of China (PBOC) to issue its own coin?
Quite likely. It would be centrally controlled and monitored with the ability to track and tax as needed along with controls to turn people’s life savings on and off with a switch. This is the ultimate dream of most governments around the world: To have a cashless society that allows them to continue otherwise non-sustainable policies like Negative interest rates. Without cash in a negative interest rate world, people would be stuck with their money being siphoned off slowly by a bank. This is the world they would like for us to live in.
Will Libra ever really launch, or will it be stopped by regulators?
On the one hand, the US government is the one government in the world that has the least to fear from Libra as its currency forms a big part of the backing currency basket. However, the fact that Libra is backed by a mix of Fiat currencies makes it a better alternative to even the almighty US dollar and it has gotten the regulators worried enough to propose a draconian bill prohibiting Big Tech from entering the Finance business.
I don't think Facebook is surprised at all by the reactions they have gotten from Governments. This is their first move and they are gauging the initial reactions. Now begins the process of negotiation. If Libra ultimately launches it will be with numerous sweetheart deals made with governments around the world. As we've seen in the past, companies like Facebook and Google have no moral compunctions about kowtowing to government policies if it means that they will make an extra buck.
Could the US and other countries be forced to use a national cryptocurrency issued by China in order to transact with China?
Quite unlikely. The US still has the deepest most liquid debt markets (UST) and is able to absorb a lot of capital. It is also the world's reserve currency and is freely convertible. Most trade for Oil still happens in Dollars, for example. In order for China to become a player, the first step they'd have to take is to make their currency fully convertible. This is highly unlikely given the domestic economic situation. China is also one of the largest holders of US treasury debt and will be unlike to make rash moves like insisting trade in their currency. There will however be a gradual move away from the US dollar as the world's reserve currency. The jury is still out on what system gets put in its place.
Any other thoughts on this matter?
Facebook's Libra project has made Cryptocurrency and Money discussions front and center for the moment. Although I'm not a big fan or supporter of Libra it is net bullish for the space to have them operate. I believe we will see companies like Amazon, Netflix and Google make their presence felt in the space shortly. However, much like Napster vs Kazaa, Corporate-issued Crypto is likely to face quite an uphill battle as opposed to truly decentralized peer-to-peer money, Bitcoin.
The hope amongst many believers in Bitcoin is that Libra is like a "Gateway drug" that begins the red-pilling process where the general public start asking questions like "What is money?", "What gives this piece of paper in my pocket value?". Coming up with the right answers to these questions will ultimately lead them towards alternatives like Bitcoin. At Least that is the hope.
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