After the recent publication of Facebook’s newly created digital currency’s white paper, and the founding of the Libra Association, the social networking behemoth has been under investigative pressure from infinite monetary policymakers, politicians, and even government leaders, who questioned Facebook’s action to disrupt the global financial system, considering that its platform is home to over 2 billion users on a monthly basis.
In a recent post via GlobalTimes.cn, Li Daokui, the director of the Academic Center for the Chinese Economic Practice and Thinking (ACCEPT) at Tsinghua University and Chief Economist at the New Development Bank of China, compares Facebook’s native cryptocurrency Libra to the Chinese payment options that come with local messaging apps such as AliPay and WeChat Pay.
Although Daokui believes that Libra will be successful and a functioning solution to convenient and secure cross-border monetary transactions, he says that a big difference between Libra, and AliPay or WeChat Pay, we shouldn’t sleep on, is the fact that it won’t have a fixed price.
AliPay and WeChat Pay are both subject and directly linked to the Chinese yuan, while Libra, will have its own stable price, yet it won’t be associated with USD, gold, or any other form of physical or digital asset that tends to offer monetary value, making it indeed look like a threat to the traditional monetary system.
In his own words, Daokui cites that “there is a big chance that Libra becomes an important super-sovereign currency” on its own, regardless of the opposition, as it is based on an already established multi-billion participant network.
Additionally, Libra will be interacting with various major currencies, making it a complicated geopolitical issue from one point of view, even if central banks are still on an investigative level and are not triggered by Facebook’s move into the adult’s playground.
An interesting notion is that Facebook’s centralized child could interfere with monetary transactions in countries using the digital currency or even freeze Libra accounts based in those countries, resulting in a country’s complete economic paralysis if Facebook says so.
Another important issue to consider as expressed by the central banks is the growing number of financial companies using Libra in their own networks. At some point, major digital and physical assets might be priced in terms of Libra, in which case, the Libra association becomes a super central bank with its own centralized monetary policy and protocols.
Furthermore, Daokui believes that “countries with fragile economies” will be among the first to utilize Libra cryptocurrency in order to cope with local inflation and strict monetary laws, making Libra a daily-currency for these countries.
But the most important customers will be those who are depending on cross-border transactions, as Libra is essentially Bitcoin, made simple for my mother to use.
Finally, Daokui’s advice to the Chinese is that they should spread the use of AliPay, WeChat Pay, Tencent etc. to help increase the usage of yuan on a world-wide scale.
At the same time, he believes that the Chinese government shouldn’t ban Libra, neither embrace it, as he proposes that it should be used in emergency scenarios where a crisis can be avoided using Facebook’s currency, but instead, he cites that the government must get involved with the Libra association, in order to have a say in its future monetary policies.
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