The announcement of Facebook’s proposed cryptocurrency, Libra, sent shockwaves through the financial world—like a stone dropped into still water. In recent weeks, senior officials from the People’s Bank of China (PBOC), including Mu Changchun, Deputy Director of the Payment and Settlement Department, Wang Xin, Director of the Research Bureau and Currency and Gold Bureau, and former PBOC Governor Zhou Xiaochuan, have all publicly commented on Libra and digital currencies.
Industry experts suggest that while Libra may face significant hurdles before actual deployment, it represents a growing trend: private enterprises aiming to create global, supranational digital currencies. As such currencies gain traction—especially in cross-border payments—their impact on existing monetary and financial systems could be profound. At the same time, these private-sector initiatives may accelerate national efforts to develop sovereign digital currencies. Notably, the PBOC has already established the Digital Currency Research Institute and is collaborating with market players to advance central bank digital currency (CBDC) development.
Libra Emerges: Renewed Focus on Digital Currencies
According to its white paper, Libra aims to build a stable digital currency on a secure, open-source blockchain. This currency would be backed by real-world assets and governed by an independent association.
Key features of Libra include:
- Blockchain foundation: Built on a secure, scalable, and reliable blockchain infrastructure.
- Asset-backed stability: Unlike volatile cryptocurrencies like Bitcoin, each Libra coin is fully backed by a reserve of short-term government bonds and bank deposits. This basket of assets ensures price stability and builds trust in the currency’s intrinsic value.
- Decentralized governance: Managed by the Libra Association, a non-profit organization based in Geneva, Switzerland. Founding members include major global firms such as Visa, Mastercard, PayPal, eBay, and Booking Holdings.
- Data separation: Facebook created a regulated subsidiary, Calibra, to manage financial services on the Libra network while keeping social and financial data separate.
Zhou Sha, CEO of Jingtum Tech and co-founder of MOAC blockchain, emphasized Facebook’s massive user base—over 2.7 billion globally. Even if only 10% adopt Libra, its economic scale would surpass that of many nations. Initially serving as a payment tool within Facebook’s ecosystem, Libra could evolve into a full-fledged financial platform supporting lending, savings, and even decentralized financial products (DeFi).
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Zhou envisions a future where both sovereign and supranational currencies coexist. For smaller economies lacking the infrastructure to sustain their own currency, adopting a stable digital alternative like Libra could become a viable option.
Libra isn’t alone. Other financial giants are exploring similar paths. JPMorgan Chase has developed JPM Coin, a blockchain-based token enabling instant interbank settlements. Goldman Sachs CEO David Solomon has also hinted at the potential launch of a proprietary cryptocurrency.
Regulatory Scrutiny Intensifies
Can privately issued digital currencies like Libra gain regulatory approval? What would their widespread adoption mean for monetary policy and financial stability? These questions have sparked intense debate—and regulatory alarm.
Within a single week, top Chinese financial officials voiced concerns:
- Zhou Xiaochuan suggested that a more globalized, dominant currency could emerge—one that reshapes exchange dynamics with existing fiat currencies. While not necessarily Libra, this reflects a broader trend toward borderless digital money.
- Wang Xin noted Libra’s potential in cross-border payments but warned of risks to monetary policy transmission and financial stability.
- Mu Changchun emphasized that any convertible, cross-border stablecoin must operate within central bank oversight frameworks.
Zhou Sha warned that if half the world’s population used Libra, they would effectively exist outside traditional banking systems—rendering central bank policies ineffective for that segment.
Regulators worldwide share these concerns. U.S. lawmakers have called for Facebook to halt Libra development until risks around money laundering, consumer protection, and data privacy are addressed through public hearings and legal review.
Mu Changchen stressed that such digital currencies require international regulatory cooperation to prevent monopolies and ensure financial system integrity—potentially paving the way for a new form of global central banking coordination.
Could Private Currencies Accelerate Sovereign Digital Money?
Central banks aren’t standing still. Institutions like the Bank of England, Bank of Canada, and Sweden’s Riksbank are actively researching CBDCs. The IMF has even proposed an SDR-backed global digital currency—sometimes dubbed “IMF Coin.”
In China, the PBOC launched its Digital Currency Research Institute in 2017. Could private innovations like Libra “push” governments to fast-track sovereign digital currencies?
Zhou Sha believes so. He argues that while industrial economies were driven by capital, the digital age is ruled by information. China leads in mobile payments and digital asset creation—giving it a strategic advantage in launching a national digital currency.
Wang Xin confirmed that the PBOC is officially developing its digital currency in collaboration with market institutions. The project is already being tested in Shenzhen and other regions.
The PBOC defines its digital currency as Digital Currency Electronic Payment (DCEP)—a direct substitute for physical cash (M0). Key benefits include:
- Enhanced monetary policy effectiveness
- Improved payment efficiency
- Potential for interest-bearing digital cash
- A new policy tool: adjusting DCEP interest rates could influence lending rates and break the zero lower bound
However, launching a sovereign digital currency isn’t just technical—it’s transformative. Zhou Sha explains that DCEP could disrupt the traditional two-tier banking system (central bank → commercial banks → public). If individuals and large corporations can hold accounts directly at the central bank with interest accrual:
- Monetary policy would act directly on end users
- The money multiplier effect would diminish
- Commercial banks might evolve into pure investment or lending institutions
This structural shift is inevitable, he argues—and demands careful study.
Frequently Asked Questions
Q: What is the main difference between Libra and Bitcoin?
A: Unlike Bitcoin, which is highly volatile and not backed by physical assets, Libra is designed to be stable—fully backed by a reserve of bank deposits and government securities.
Q: Is China’s digital currency already in use?
A: The PBOC’s DCEP is in pilot testing in several cities like Shenzhen and Suzhou, but it is not yet fully rolled out nationwide.
Q: Could Libra replace national currencies?
A: Full replacement is unlikely in major economies, but Libra could become dominant in countries with weak financial systems or high inflation.
Q: How does a central bank digital currency affect privacy?
A: While transactions may be traceable for regulatory purposes, designs aim to balance privacy with anti-money laundering (AML) compliance.
Q: Will digital currencies eliminate physical cash?
A: Not immediately. DCEP is intended to complement—not fully replace—physical cash, especially during the transition phase.
Q: Can individuals earn interest on central bank digital currency?
A: Potentially yes. One proposed feature of DCEP is that it could bear interest, making it a new form of safe-haven asset.
The race between private innovation and public monetary policy has begun. As supranational digital currencies gain momentum, nations are responding with sovereign alternatives—ushering in a new chapter in the evolution of money.
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