At a time when both the US and China are working to get an edge in the digital currency landscape, Facebook’s proposed cryptocurrency Libra, could play a decisive role. Analysts at RBC Capital Markets suggests that if the US regulators dismiss Libra it could leave the field wide open for China’s central bank digital currency (CBDC) to dominate the digital currency landscape.
China hurrying with crypto efforts
In a note to clients on Tuesday (via Markets Insider), RBC Capital Markets analysts suggested that Facebook’s Libra could boost the US’s ability to compete with China in developing digital currency for the emerging economies.
“If US regulators ultimately dismiss Libra and decide not to draft regulation to encourage crypto innovation in the US, China’s CBDC may be strategically positioned to become the de facto global digital currency in emerging economies,” the analysts said.
Moreover, the analysts even noted that China hurried with the development of its CBDC after Facebook talked about its crypto plans in June. Earlier this year, the People’s Bank of China first announced of working on a digital currency backed by the Yuan.
Further, the analysts noted that China enjoys a potential advantage of using messaging and payment, such as Alipay, WeChat and more, to popularize its digital currency. Previously, Facebook said something similar that it would allow users to send Libra via Messenger and WhatsApp and through a standalone app Calibra as well.
Letdown for Libra
The comments from the RBC analysts follow some serious letdown for Facebook’s Libra. The cryptocurrency has been facing intense scrutiny since its announcement. Also, it is believed that the largest backers of Libra, including Visa, MasterCard, and eBay, have now backed out. Earlier this week, the social networking company released a new list of 21 companies that still believe in Libra.
RBC analysts believe that many known names are still interested in joining Libra, and the companies that backed out can comeback if they get the right environment. The analysts note that if the US develops a “clear regulatory roadmap” and Libra launches successfully, then the companies that left the project may return.
What experts have to say?
Recently, US Treasury Secretary Steven Mnuchin said that the companies that left Facebook’s Libra project did so due to administrative concerns. Mnuchin suggested that Facebook’s digital coin is not in-line with American Anti-Money Laundering principles.
“If they don’t meet the standards of our money-laundering standards and the standards that we have at FinCEN, we would take enforcement actions against them,” Mnuchin said On CNBC’s Squawk Box on Oct. 14.
Bank of England governor Mark Carney, earlier this year, made a similar comment as said by RBC analysts. Carney said the development of other digital currencies could “dampen the domineering influence of the U.S. dollar on global trade.” On the other hand, Fed chairman Jerome Powell said earlier this year that though the US is keeping an eye on the sovereign-issued digital currencies, it not “actively considering” one.
Talking about the importance of cryptocurrency to China, CEO of Ripple, Brad Garlinghouse told CNBC that the dragon country is thinking very strategically about cryptocurrency. “They have been dependent on the U.S. dollar as the global reserve currency — to the extent that other currencies emerge, and they can help propagate those, they’re intrigued by that.” Garlinghouse said.
Facebook, on its end, is doing all it could to ease regulatory concerns around Libra. In July, during a Senate hearing, Facebook’s chief executive for Libra David Marcus, tried to assuage regulators concerns over Libra. On October 23, Facebook CEO Mark Zuckerberg is scheduled to testify in front of Congress, where he will talk about Libra.