China’s Yuan vs Facebook’s Libra

In the race for digital currency supremacy, China has taken the lead as it is set to become the world’s first country to launch its own CBDC (central bank digital currency). This cryptocurrency is said to directly attack the likes of Bitcoin and the Dollar, as China hopes to make Yuan the dominating currency worldwide.

The Pan-Asian Digital Currency

However, China still needed a way to threaten Libra, Facebook’s digital currency. Thus came the Chinese lead Pan-Asian Digital Currency. This blockchain-based cryptocurrency will also include Japan Yen, Hong Kong Dollar, and South Korea Won in an attempt to directly limit the Libra’s potential economic power against foreign exchange upon release.

While this cryptocurrency’s value will be backed by a basket of the four currencies, the ratios of the currencies will be determined by the economic scale of their associated economies reported Decrypt. This network will help foster the free trade agreement between the participating countries, creating a trade zone independent of the dollar.

This cryptocurrency will further establish a cross-border payment network where businesses will make deals with each other using digital wallets. The network will help expand international trade as it will lessen the risk of foreign exchange volatility and allow smoother transactions. The efforts are clearly in line with China’s goal to increase the use of its currency internationally. while reducing the worldwide dominance of the United States Dollar and the potential Facebook Libra.

Where is Facebook’s Libra?

The initial model for Libra was to be backed by financial assets including a basket of currencies. This included 50% US Dollar, 18% Euro, 14% Japanese Yen, 11% Pound Sterling, and 7% Singapore Dollar as reported by Blockchain News. However, this idea was abandoned by The Libra Association due to the regulatory pressure and political pushback.

They then came up with the idea to manage the Libra coin backed by individual fiat currencies which would be created on-demand. Thus they are now offering separate coins that will support both existing government-backed currencies, like the US dollar and the Euro along with the Libra token. The change reflects the concerns that the use of different currencies in a single country would weaken the effect of their respective monetary policies.

Conflicts of Interest

Even though China is ahead in developing the Digital Yuan, the other participating countries also have the ball rolling in developing their own government-backed digital currencies. Moving forward, this network will have to develop viable ways to manage 2 government-backed digital currencies in each country.

Another doubt is that the Pan-Asian Digital Currency is just starting out while their rival Libra is almost done with development and close to release. Thus it places doubt on whether China’s efforts can be launched in time to defeat their rivals.

Concerns for Japanese Yen

The Yen was surprisingly dropped from the revised Libra plan as a candidate for the single-currency digital coin, although it was one of the five currencies comprising the original Libra currency basket. It is assumed that the Yen was considered unattractive due to the chances of its use in cross-border transactions being low.

With Japan trying to stay competitive and creating its own digital Yen, many fear “Galapagosization”. This would result from developing a digital payment infrastructure that lacks global interoperability said Nikkei. This was seen before with Japanese mobile phones that developed peculiar features to cater to the domestic market but eventually lost global competitiveness, thus Galapagosization.

Originally published at https://www.linkedin.com.