Rise of Libra and Digital Yuan Spur Action from Global Powers
Facebook and China turn up the heat.
Facebook’s Libra may have nudged central banks to open their eyes to the world of digital currencies, but China’s brisk progress on its digital yuan has compelled global powers to take CBDCs much more seriously.
Building a Neutral Settlement Currency
A member of the Federal Reserve Board of Governors, Lael Brainard, confirmed that the central bank is examining the prospects of a CBDC. Just like the ECB, the Federal Reserve has already begun research and experimentation.
Supranational agencies are key drivers in the push for digital currencies. Both the World Bank annual meeting in October 2019 and the World Economic Forum (WEF) meeting in Davos, Switzerland, these agencies have requested central banks around the world to investigate digital currencies.
The WEF went as far as publishing broad guidelines for how to study digital currencies. As it stands today, 80% of central banks are exploring the viability of digital currencies.
Facebook’s announcement of its crypto project, Libra, vitalized central banks and financial regulators into action too. If this wasn’t enough, China formally announced its work on digital currencies was progressing smoothly, and a rollout could occur as early as 2020.
Indeed the global community is trying to close the gap between it, a private social media company of more than three billion users, and a country notorious for violating human rights.
Japan’s central bank recently publicized its intent to study digital currencies with peers, specifically calling on the Federal Reserve to help, Bloomberg reports.
Norihiro Nakayama, a lawmaker from Japan’s ruling party, told Bloomberg that “we sense the digital yuan is a challenge to the existing global reserve currency system and currency hegemony,” said Nakayama, a top member of the ruling party group that drafted the proposals. Adding:
“Without the U.S., we cannot counter China’s efforts to challenge the existing reserve currency and international settlement system.”
China’s digital yuan could see considerable traction within its borders.
But, Japan’s plea opens the door to a multi-party digital currency used solely for settlements. In this case, global trade would be settled in the new digital currency, ideally run by a consortium of central banks.
Central banks are seen as gatekeepers of coherent monetary policy. Central banks, together, form one side of the picture while Libra is a common opposition.
A collaborative effort to introduce a new system would see more traction than a standalone country’s efforts. In the former, other countries could join in to pool resources and jointly reap the rewards of digital innovation.
In light of China’s progress, however, central banks will have to move quickly. China’s central bank previously indicated they have plans to push their currency in the Western world, which could prove to be a thorn for financial regulators in the region.