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Central Banks’ Joint Attempt Versus Libra To Maintain State-Backed Monetary Power

January 22, 2020
Ross Peili


Central Banks’ Joint Attempt Versus Libra To Maintain State-Backed Monetary Power

Ever since Facebook revealed its interest to tap into the financial technology domain with one of the most controversial private cryptocurrencies that are not even released yet, the global financial regime started to take things around crypto seriously, and often thinking and proposing the development of a series of state-backed digital currencies through the established economy run by central banks.

The first government-size response hailed from China, where President Xi Jinping announced during a public speech that the country aims to become a global leader in blockchain technology, as well as the first government to issue a national digital currency, the one known as DC/EP (Digital Currency/Electronic Payments). 

While the People’s Bank of China postponed the release of the long-awaited CBDC (central bank digital currency), which was supposed to be out by late 2019, it made clear that a new race about who’s gonna rule the global electronic payments scene has started.  

Analogous propositions popped up by Canada, the US, and of course Europe, who kept a skeptic, yet investigative approach on the matter, right after China’s bold announcement.  

Read More: China Issues ‘Risk Tips’ Asking Local Investors To Stay Away From Public Cryptos

Central Banks unite to fight Facebook’s Libra

Today, a mutual announcement between the Bank of England and the European Central Bank said that the issuance of CBDCs is being discussed among major international central banks in order to tackle the future of the global economy and finding a solution that will benefit the state-backed economic sovereignty before it completely loses its power to private modules such as Facebook.

Among the participants in this top-shelf discussion, we can find British, European, Japanese, Swiss and more international central banks curated by the former ECB official Benoit Coeure and assisted by the Bank of International Settlements, according to Reuters

“The group will assess … economic, functional and technical design choices, including cross-border interoperability; and the sharing of knowledge on emerging technologies,” the central banks said in a statement.

The thing is that governments already knew about Bitcoin, blockchain, and digital payments, but they tended to keep a distance between public cryptocurrencies and state-backed economies for the sole reason they weren’t sure how exactly it works, how to regulate it, and most importantly how to control it.

Obviously, nowadays that’s not an issue, and pretty much every single cryptocurrency broker, exchange market, vendors, wallet providers are subject to government monitoring and are usually treated under the same regulations as traditional financial institutions. 

So why is it the governments are not keen on using an existing public cryptocurrency for their own needs, and why projects such as Facebook’s Libra, or China’s DC/EP pressure whole nations to develop their own counterparts instead of joining the above projects?

Read More: ECB Announces Proof-of-Concept for EUROchain Distributed Ledger

Sure, the answer could be as simple as “for the same reason we have so many different fiat currencies”, but in digital economy’s terms it goes a couple steps further than that.  

Whoever controls digital payments, controls the future global economy

Initially, a blockchain-powered central bank digital currency is not just a virtual representation of a fiat currency. It’s a cross-border monetary settlement network that is not necessarily limited to one fiat currency when it comes to reserves.

Take Libra for example, where David Marcus, CEO of the Libra Association, made clear many times that Libra is not a USD pegged crypto, but a digital currency that will be backed by a basket of national currencies.

Essentially what that means is that Libra could have different pairing prices for different fiat currencies at different times, making it a financial weapon capable of manipulating market prices, or even shorten or increase the demand for a certain national currency. 

That’s the first aspect financial regulators across the world pointed out about Libra, making governments urge to find an alternative if not a counter-measure. 

To sum this up, the key behind such as monetary architecture is that whoever controls the highest digital payments network in terms of adoption, basically controls the global economy, hence Facebook’s Libra, which has already over a couple of billion users on the shelf is considered extremely dangerous and it is the main dish of international financiers’ ‘food for thought’ at this time.