China’s cryptocurrency czar believes that while the world powers do not welcome Facebook’s Libra, the stablecoin’s advance might now be unstoppable.
A few days before Changchuan Mu, the new director of China’s Research Institute on Digital Currency, officially assumed his role on Sept. 6, an online education platform released six lectures by the crypto chief.
In the series, Mu answers a range of crypto questions, from Libra’s technical features, to its potential integration with the international currency system, while touting the advantages of China’s own digital currency compared to Libra.
“No countries welcome Libra, but it might be unstoppable anyways,” Mu said in the third lecture of the series. “It is very unlikely that one can totally stop people from buying Libra despite rigorous regulations.”
Mu explained that the most a central bank could do to prevent Libra from entering a country would be to ask all their payment institutions and commercial banks not to process any transactions related to Libra.
However, there are still a few back channels through which users could circumvent the ban to purchase Libra, he said, citing underground Bitcoin trading in China as an example of how it could work.
Although China’s exchanges have blocked bitcoin transactions and payment institutions and commercial banks are prohibited from processing any bitcoin transactions, there are still some agencies that use virtual private networks (VPNs) to buy bitcoin from foreign exchanges, according to Mu.
The situation applies to Libra as well. “Even if Facebook is blocked in China, people will use indirect ways to purchase it from abroad once Libra comes out,” Mu said.
But he thought that there was only one possibility to stop Libra: “If the U.S. bans Libra legally, then Libra will certainly be stopped.”
As long as the U.S. does not put a legal ban on Libra, and other central banks loosen regulations over time, it is highly likely that Libra will become a dominant international currency, Mu said.
There are a few extreme cases where a country fully embraces Libra, Mu said, noting Zimbabwe -- with rampant inflation -- announced last year that it welcomes any alternative currencies.
A Fight Over Monetary Sovereignty
If one of the foundations for monetary policy is that the central bank is able to control supply and demand of its local currency by adjusting the interest rate, Libra would be a destabilizing force, Mu argued.
Effective monetary policies are crucial for a country’s economy, Libra would chip away that power, he said.
“If we allow Libra come to the market, we would open the underground economic channels,” Mu said. “It will be hard for China to manage foreign currencies and the $50,000 capital outflow cap would be less effective,” Mu said.
Controlling capital flows and preventing money laundering were the “deeper reasons” behind the Chinese crackdown on initial coin offerings in 2017, he said. Mu said about 15% of international payments last year were encrypted assets, citing a survey from blockchain company Clovr, although CoinDesk was unable to locate that report.
Mu said Thailand and Vietnam would lose control over their monetary and interest rate policies because of their weak currencies, while Libra could also inflate local currency as people tend to buy cryptocurrency with local fiat, resulting in inflation and the devaluation of assets denominated by local currencies.
Repair The Roof Before A Rainy Day
Earlier this year, China announced plans to launch the DCEP -- the Digital Currency Electronic Payment -- as a domestic stablecoin rival in the Libra model.
While Mu pointed out that DCEP will not be a copy of Libra, the central bank has compared DCEP with Libra in its statements and in how the coin would be used by consumers.
China’s national digital currency plan would be fully-backed by the central government and pegged one-to-one to the Chinese renminbi.
“One of the goals for DCEP is to replace cash,” Mu said. Since the DCEP is not tied to a bank account, the currency can enable users to have anonymous transactions, which would give the same advantage as Libra in terms of digital payment.
While there is a possibility that Facebook could track you down if you use Libra, the same would be true for the DCEP, according to Mu.
“The new digital currency will spot certain behavioral patterns using big data and identify the users,” Mu said, noting the technology can “help the government crackdown on money laundering, tax evasion and financing terrorist groups.”
“We need to defend our monetary sovereignty and currency, repair the roof before a rainy day,” Mu said.
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