Why are major players piling the pressure on Libra? The bottom line is the fact that Libra is different from cryptocurrencies like Bitcoin because it’s designed to be a stable currency that’s backed by a reserve of US dollars, euros, and Japanese yen and that has clear potential to influence the global currency markets.
A report submitted to the G7 countries stated that Libra could become a serious risk to financial stability and public trust. The G20 states which includes emerging economies are also concerned about the possibility of “another Libra” evolving before international regulations are in place.
China is speeding up its process of developing a digital yuan. Professor Yang Dong of Renmin University spoke to NHK World last year, noting that Beijing authorities think, “a sovereign digital currency is the way to go” and that, “this would be a digital revolution -- the biggest since the Industrial Revolution three centuries ago.”
After five years of consideration, the digital yuan may be launched in limited areas for a quick start, and for experimental purposes. China could be the first country to launch a central bank digital currency. Some analysts speculate that PayPal, a former partner in the Libra Association, withdrew from the Facebook team to make headway with its Chinese business.
And the Europeans are not sitting back. France and Germany issued a joint statement asking the European Central Bank to explore the possibility of their own digital currency. And Christine Lagarde, who became the head of the ECB this month, may be open to the idea as she was inclined that way while previously serving as the Managing Director of the International Monetary Fund. Media reports from Europe suggest that the EU may approve a document next month asking the ECB to take concrete steps in developing a digital euro.
Unlocking dollar funds
Bank of England Governor Mark Carney this summer proposed a new digital currency backed by a large group of nations. Such an international currency, he said, could unlock dollar funds that governments currently hold as insurance for uncertain times. He challenged the dominance of the US dollar, arguing that it could be replaced by a global digital alternative that would reduce the volatility of currency markets and capital flows to emerging market economies.
Meanwhile, the US remains cautious about digital currencies. Lael Brainard, a board member of the Federal Reserve, emphasized in a recent speech that operational risks, such as electronic counterfeiting, possible monetary policy implications and financial stability considerations, should be weighed in. She added that, “while prudence cautions against rushing into untested approaches to central bank digital currencies, we are actively investing in our payments infrastructure.”
But discussions on reducing the reliance on the US dollar may continue, as the development of central bank digital currencies has become more than a trend. Given that, the debate then turns to considering if this represents the beginning of a new world economic order.