Last June Facebook unveiled a “global digital currency” called Libra. The idea triggered a backlash and Libra may never launch, at least not in the way it was originally envisioned. But it’s still made a difference: just days after Facebook’s announcement, an official from the People’s Bank of China implied that it would speed the development of its own digital currency in response. Now China is poised to become the first major economy to issue a digital version of its money, which it intends as a replacement for physical cash.
China’s leaders apparently see Libra, meant to be backed by a reserve that will be mostly US dollars, as a threat: it could reinforce America’s disproportionate power over the global financial system, which stems from the dollar’s role as the world’s de facto reserve currency. Some suspect China intends to promote its digital renminbi internationally.
Now Facebook’s Libra pitch has become geopolitical. In October, CEO Mark Zuckerberg promised Congress that Libra “will extend America’s financial leadership as well as our democratic values and oversight around the world.” The digital money wars have begun.
Why it mattersAs the use of physical cash declines, so does the freedom to transact without an intermediary. Meanwhile, digital currency technology could be used to splinter the global financial system.
Key playersPeople’s Bank of China, Facebook