Facebook Inc. wants to spawn a new global currency – one that could meet the “daily financial needs of billions of people” and perhaps rival the greenback one day
It’s one thing for academics in Asia to rant against the tyranny of the dollar, or to make cheery forecasts about its impending eclipse by the Chinese yuan. But now that Facebook Inc. wants to spawn a new global currency – one that could meet the “daily financial needs of billions of people” and perhaps rival the greenback one day – central banks in Beijing, Jakarta, Manila or Mumbai won’t exactly be ecstatic.
To them, the prospect of being at the mercy of a cabal of tech czars and venture capitalists sitting in Switzerland could well mean swapping the yoke of the U.S. Federal Reserve for a less predictable and potentially more sinister dependence.
What if Facebook’s crypto, backed by fiat-currency assets and offering stable value, starts out by paying for coffee but over time becomes people’s preferred store of wealth? What will it mean for monetary sovereignty? Suppose users of Libra, as the currency will be called, manage to set aside their outsize privacy concerns with Facebook. Were the tokens to take off and – against all regulatory odds at home and abroad – gain global acceptance, there will be several implications for governments around the world.
Some of them will be of particular concern in Asia, where most of the larger economies, starting with China, yearn for a growing role for their currencies in international commerce and as a store of value. Americans enjoy everything a little cheaper because the world – including money launderers, drug dealers and terrorists – wants the U.S. currency, which only the Fed can manufacture. China wants the same privilege for itself; and in a decade or two, India and Indonesia will, too. However, the long, patient game of internationalizing the yuan would get complicated if the Chinese on the mainland themselves take to Libra to bypass the country’s increasingly invasive social scoring system.
Shielded by capital controls, Asian central banks at times seek weaker currencies to stimulate their export-led economies. But if people can move their wealth with one scan of a QR code to a digital coin backed by a reserve of low-risk assets – including bank deposits in various currencies and U.S. Treasuries – such stratagems won’t work any more. The People’s Bank of China could then respond with its own digital currency, and unlike Facebook, pay interest on it.(2) Other central banks may join the battle for continued relevance. This competition, and not devaluation, could end up becoming the real currency war of the 21st century.
