Facebook’s Libra poses a threat to China’s financial sovereignty, plans to use yuan overseas, analysts say

Libra was unveiled three months ago and is still pending global regulatory approvals, but could reach Facebook’s 2.7 billion users worldwide

China’s digital currency electronic payment (DCEP) is believed to be ready to launch by the People’s Bank of China, but some question if it is enough

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Facebook, which will peg Libra to a basket of currencies backed by reserves, has 2.7 billion users as well as the backing of global payment, technology, telecommunication, blockchain and venture capital firms. Photo: Reuters

Published: 8:00pm, 30 Sep 2019Updated: 9:20pm, 30 Sep 2019

Facebook’s planned digital coin Libra poses a serious threat to China’s financial sovereignty, its capital control regulation and its plans to promote more use of yuan overseas, meaning Beijing must take bolder steps in its currency reforms, analysts said.

China has been developing its digital currency electronic payment (DCEP) for some time, and is it believed to be ready to launch by the People’s Bank of China (PBOC), however, market concerns remain high over whether it is enough.

Libra was unveiled three months ago and is still pending global regulatory approvals, but poses a threat to Beijing’s ambitions for the yuan, despite China having been at the forefront in terms of the size of its digital economy, domestic electronic payment use and the study of a central bank digital currency.

Zhang Anyuan, chief economist from China Securities, said DCEP is just a digital form of the yuan according to the details revealed so far, and its internationalisation will not succeed without a monetary theory breakthrough or a money creation innovation.

DCEP anchoring purely on [the yuan] won’t be able to compete with Libra, despite it may draw the participation of internet giants like Alibaba and Tencent

Zhang Anyuan

“DCEP anchoring purely on [the yuan] won’t be able to compete with Libra, despite it may draw the participation of internet giants like Alibaba and Tencent,” he warned.

Facebook, which will peg Libra to a basket of currencies backed by reserves, has 2.7 billion users as well as the backing of global payment, technology, telecommunication, blockchain and venture capital firms. Its planned usage will also be more than the Chinese version, which will be first used for retail sales and potentially cross-border payments.

Raymond Yeung, the chief Greater China economist at ANZ Bank, said China’s immediate reaction to Libra was to defend its financial sovereignty by issuing its own digital currency, and the subsequent move would be how to offset the US dollar system in the digital era.