A visual representation of a cryptocurrency coin on display in front of the logos for Facebook and Libra.
Chesnot | Getty Images
Facebook's cryptocurrency plans looked shaky this week after a handful of high-profile members bowed out of the project. But while libra slowly gets off the ground, China is looking to launch an alternative.
The People's Bank of China announced earlier this year that it was working on a digital currency backed by the yuan, reportedly inspired by Facebook's announcement. Analysts and crypto industry leaders are highlighting geopolitical implications of China launching a digital currency first especially if libra hits a brick wall with U.S. regulators.
"China has been incredibly strategic about how they think about cryptocurrency," Brad Garlinghouse, CEO of Ripple, told CNBC in a phone interview. "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."
China's proposed digital currency would bear some similarities to Facebook's libra, a senior central bank officer said this summer, according to a transcript of a speech that was published online. He also said the digital coin could be used across major payment platforms, including China's ubiquitous WeChat and Alipay.
RBC Capital Markets analysts told clients this week that based on recent conversations and meetings in Beijing, China's plans are moving quickly. The People's Bank of China "has expedited its development of a Central Bank Digital Currency" after Libra's announcement in June, the analysts said.
"If U.S. regulators ultimately dismiss Libra and decide not to draft regulation to encourage Crypto innovation in the U.S., China's [Central Bank Digital Currency] may be strategically positioned to become the de facto global digital currency in emerging economies, largely through Alipay, WeChat, UnionPay and other messaging & payment apps," RBC analysts Mark Mahaney and Zachary Schwartzman said in a research note Tuesday.
Cryptocurrency would add to a long list of existing tensions between the global superpowers. The U.S. and China are locked in a stalemate on trade, and a battle for dominance in 5G, the mobile network promising faster data speeds. The U.S. Treasury Department has also labeled China as a currency manipulator a complaint that could be exacerbated if a yuan-backed cryptocurrency takes off.
Fed chairman Jerome Powell said earlier this year that the U.S. is keeping an eye on sovereign-issued digital currencies but that it wasn't something he was "actively considering." In the meantime, other digital currencies could "dampen the domineering influence of the U.S. dollar on global trade," Bank of England governor Mark Carneysaid during a speech in Jackson Hole, Wyoming, earlier this year.
In June, Facebook announced that it would spearhead the launch of a cryptocurrency run by the nonprofit Switzerland-based Libra Association in 2020. Libra is a so-called "stable coin," meaning its value is tied to that of an underlying fiat currency such as the dollar. For now, the Libra Association has said its cryptocurrency would be pegged to the yen, U.S. dollar and euro. It has not said whether the yuan would be included.
It started with roughly two dozen members. But last week Visa, PayPal, MasterCard and Stripe all dropped out, fueling concerns that the project may never see the light of day. The association met this week in Geneva, Switzerland, and the remaining group signed the association's charter on Monday.
Katie Haun, general partner at Andreessen Horowitz and co-head of its $350 million cryptocurrency fund, was elected to the board of directors for the project. Despite the exodus of high-profile names this week, Haun said she and the firm "remain committed to Libra's mission."
The project received pushback this summer from senior congressional finance committee members, global regulators, former lawmakers and industry insiders who flagged risks and questioned Facebook's ambitions.
Lisa Ellis, senior equity analyst at MoffettNathanson, said regulators may be sidetracked by Facebook's involvement in libra and need to "keep their eye on the fact that we do need to innovate to create digital forms of currency."
"If governments and regulators are concerned about their control over monetary systems and money flows, the best defense would be a good offense," Ellis said. "It would behoove regulators in the U.S. and Europe over the long term to maintain their leadership given that the dollar, the euro and the yen are used as proxies for global reserve currencies."
Ripple's Garlinghouse, who has been critical of libra, pointed to U.S. dominance in the rise of the internet, too. That was in part because of a "constructive regulatory policy." If cryptocurrency projects aren't grown in the U.S., he said, there are potential "geopolitical implications."
Garlinghouse is hardly alone in calls for clearer regulation. In a roundtable hosted on Capitol Hill last year, more than 50 cryptocurrency industry participants from Fidelity, Nasdaq, State Street and Andreessen Horowitz voiced concerns about lack of clear laws and potential for innovation to flee overseas as a result.
"While bashing Facebook is good politics, neglecting the traditional role of the United States in welcoming the growth of innovative technology is not," the Blockchain Association, a Washington, D.C., lobbying group for cryptocurrency and blockchain, said in a blog post last month. "Congress should focus on nurturing open blockchain networks before the United States loses out in this global technology race."
Andreessen's Haun told CNBC recently that it would be a "dangerous thing, and frankly a dangerous precedent to start shutting down technology before it's built." Haun also said there are "national security implications" if the United States falls behind in this area, and pointed to China's cryptocurrency as an example.
Others are more worried about the national security implications if libra does get off the ground. Treasury Secretary Steven Mnuchin said in July that Facebook's planned digital currency "could be misused by money launderers and terrorist financiers" and that it was a "national security issue."
He told CNBC's "Squawk Box" in an interview Monday that he met with libra representatives on multiple occasions and has been "very clear" that if they don't meet anti-money-laundering standards "that we would take enforcement actions against them."
"I think they realized that they're not ready, they're not up to par," Mnuchin said. "I assume some of the partners got concerned and dropped out until they meet those standards."
For Facebook, moving meaningfully into payments would likely be done through WhatsApp. The mobile chat app, bought by Facebook for $19 billion in 2014, doesn't have fully built-in payment functions yet. WhatsApp has, however, done a pilot program with payments in India.
RBC's Mahaney and Schwartzman said that messaging apps "represent the greatest opportunity to onboard consumers to digital wallets which could lead to a greater consumer adoption of digital currencies." This has already played out in China, where, according to RBC, WeChat has more than 1.1 billion monthly active users and Alipay counts 1.2 billion global annual active users.
Brian Kelly, CEO of BKCM, also said the reason Facebook is launching libra in the first place is to compete with those "super apps" in Asia. WeChat and Alipay's built-in payments capability could be a leg up in emerging markets.
Offering a payments capability is especially important in places such as sub-Saharan Africa, where mobile money is on the rise. According to the World Bank, the share of people with traditional financial accounts remained flat through 2018. But the percentage of those with mobile-only money accounts nearly doubled year over year to 21%.
The Libra Association is moving ahead this week despite the loss of key members. Facebook CEO Mark Zuckerberg is heading to Capitol Hill next week to answer for the project in front of the House of Representatives. Kelly said if regulatory pushback persists, he "wouldn't be surprised if libra launches in another country."
Even in the face of regulatory scrutiny, RBC analysts are predicting "Facebook will continue to pursue digital wallet initiatives."
"We believe a host of other companies remain very interested in joining the association," Mahaney and Schwartzman said. "If a clear regulatory roadmap is developed and Libra launches successfully, we would not be surprised to see these firms reapply to the association."
CNBC's Michael Bloom contributed to this report.
- U.S. Authorities Arrest Virgil Griffith For Teaching Cryptocurrency And Blockchain - Forbes - November 30th, 2019
- Nearly $50 Million of Ether Swiped From South Korean Cryptocurrency Exchange - The Wall Street Journal - November 30th, 2019
- What Hides Behind South Korean Cryptocurrency Regulation Policy? - The Diplomat - November 30th, 2019
- Thailand: Cryptocurrency Law Will Change in 2020 to Stay Competitive - Cointelegraph - November 30th, 2019
- The Cryptocurrency Market Update: Bitcoin back on recovery track, Ripple and Ethereum follow the lead - FXStreet - November 30th, 2019
- CipherTrace Q3 2019 Cryptocurrency AML Report: 2/3 of the Top 120 - AiThority - November 30th, 2019
- XRP and Ripple Name-Dropped on BBC Segment on Cryptocurrency - Ethereum World News - November 30th, 2019
- Cryptocurrency Crime Spikes This Year and SMBs are Paying the Price - Commercial Integrator - November 30th, 2019
- This Cryptocurrency Is Up 11310% in a Week. Legit Scam or Just Legit? - CCN.com - November 30th, 2019
- Akon has started building Akon City in Senegal with focus on cryptocurrency and renewable energy - Evening Standard - November 30th, 2019
- $150 Billion Cryptocurrency Boom Is Here Buy This ETF to Profit - Banyan Hill Publishing - November 30th, 2019
- Crypto Tidbits: RBC May Embrace Bitcoin, China Bashes Cryptocurrency, Ethereum DeFi Booming - newsBTC - November 17th, 2019
- Is a Cryptocurrency Derivatives Boom On Its Way? - Yahoo Finance - November 17th, 2019
- 2 men arrested in elaborate plot to steal $550K in cryptocurrency by hacking social media accounts - USA TODAY - November 17th, 2019
- This cryptocurrencys price just pumped 7,000%, but why? - Decrypt - November 17th, 2019
- The cryptocurrency market update: Bitcoin and major altcoins pass the time in ranges - FXStreet - November 17th, 2019
- Crypto-corruption In 2018, a major Russian cryptocurrency exchange lost $450 million in Bitcoin. Now, the exchange's founder is saying he transferred... - November 17th, 2019
- Big Canadian bank rumored to offer cryptocurrency accounts, Bitcoin trading - The Next Web - November 17th, 2019
- Switzerland gets another Bitcoin bank that holds cryptocurrency for customers - The Next Web - November 17th, 2019
- Banning Cryptocurrency Is Not On Indian Parliaments Winter Session Agenda - Inc42 Media - November 17th, 2019
- What Could Trigger the Next Cryptocurrency Alt Season? - Dash News - November 17th, 2019
- U.S. cant let criminals get the upper hand by using Chinas coming cryptocurrency - MarketWatch - November 17th, 2019
- China planning to reward its soldiers with cryptocurrency - FXStreet - November 17th, 2019
- Creativity and Value Will Win the Cryptocurrency Exchange Wars - newsBTC - November 17th, 2019
- Heres why the UK should launch its own cryptocurrency - Telegraph.co.uk - November 17th, 2019
- Cryptocurrency Exchange Bankruptcies Are the Failed ICOs of 2019 - BeInCrypto - November 17th, 2019
- Beware of cryptocurrency gurus like Dr Ruja and her OneCoin cult - Jim Duffy - The Scotsman - November 17th, 2019
- China to reward troops with cryptocurrency bonuses - Express - November 17th, 2019
- The cryptocurrency market update: Bitcoin and major altcoins are vulnerable to further losses - FXStreet - November 17th, 2019
- Helium is building a peer-to-peer internet-of-things network - Fast Company - November 17th, 2019
- Coinbase Announces its Upcoming Cryptocurrency IRA - The Merkle Hash - November 17th, 2019
- Three Classic Coins That Attempt To Preserve Existing Cryptocurrency Features - Bitrates - November 17th, 2019
- Cryptocurrency tracking improves -- but how? - FCW.com - November 9th, 2019
- Senator Romney Considers Action As A Nation On Cryptocurrency Threat To Homeland Security - Forbes - November 9th, 2019
- Why Is the Stellar Lumen Cryptocurrency Up 18% Today? - Motley Fool - November 9th, 2019
- Cryptocurrency This Week: Facebooks Marcus Terms Bitcoin Not A Currency; Regulation A Must, ... - Inc42 Media - November 9th, 2019
- Vancouver-based cryptocurrency exchange latest to shutter with millions owing to clients - Vancouver Sun - November 9th, 2019
- Governments race to beat Facebook's cryptocurrency, libra, at its own game: Don Pittis - CBC.ca - November 9th, 2019
- Cryptocurrency for Africa: Akon Reveals When He's Going to Launch His Own Coin - U.Today - November 9th, 2019
- Swell the News? XRP Drops 5% as Ripples Flagship Event Kicks Off - Cointelegraph - November 9th, 2019
- Why Are Cryptocurrencies Becoming a Mainstay of International Business Platforms? - CryptoNewsZ - November 9th, 2019
- Startup Targets Cryptocurrency Crime - But Will The Big Banks Come On Board? - Forbes - October 24th, 2019
- Major Bitcoin Miner Warns The Cryptocurrency Needs Better Privacy - Forbes - October 24th, 2019
- Why Cryptocurrency is in The Spotlight For More Central Banks - newsBTC - October 24th, 2019
- Cryptocurrency Mining Hardware Market 2019-2023 | Evolving Opportunities with Advanced Micro Devices, Inc and Baikal Miner | Technavio - Business Wire - October 24th, 2019
- Bank of Canada Warms To National Cryptocurrency, Will it Compete Against Bitcoin? - newsBTC - October 24th, 2019
- Facebook's Cryptocurrency Libra Could Threaten Alipay and WeChat Pay, Tencent Says - CryptoGlobe - October 24th, 2019
- Are Smart Cities The Pathway To Blockchain And Cryptocurrency Adoption? - Forbes - October 24th, 2019
- Where US Regulators Stand on Cryptocurrency - Bitcoin News - October 24th, 2019
- Europol: Bitcoin is the principal cryptocurrency used in the dark web - FXStreet - October 17th, 2019
- SEC puts a stop to Telegram's cryptocurrency plans in the US - Engadget - October 17th, 2019
- Alert: IRS Releases Long-Awaited Guidance on Taxation of Cryptocurrency Transactions - JD Supra - October 17th, 2019
- Chinas Global Cryptocurrency May Be on the Horizon - ETF Trends - October 17th, 2019
- Mastering Emotions and Managing Risk in Cryptocurrency Trading - Coindesk - October 16th, 2019
- Telegram might be forced to put its global cryptocurrency plans on ice - MIT Technology Review - October 16th, 2019
- Bitcoin Will Break Out Again in November, Suggests Cryptocurrency Trader - BeInCrypto - October 16th, 2019
- Theres A New Question On Your 1040 As IRS Gets Serious About Cryptocurrency - Forbes - October 16th, 2019
- An overview of Facebooks cryptocurrency supporters whos in and whos out - The Next Web - October 16th, 2019
- Cryptocurrency market update: Bulls swinging into action, Bitcoin, Ripple and Ethereum in the green - FXStreet - October 16th, 2019
- Another partner abandons Facebooks cryptocurrency - Marketplace.org - October 16th, 2019
- The New Guidance on Cryptocurrency - Accountingweb.com - October 16th, 2019
- The issuer of a star cryptocurrency is being sued for $1.4trn - The Economist - October 16th, 2019
- Casbaneiro is a threat to cryptocurrency in Latin America - Yahoo Finance - October 16th, 2019
- CipherTrace report: 87% of cryptocurrency trading is now traceable - FXStreet - October 16th, 2019
- Facebooks Blockchain-Based Cryptocurrency Libra: Everything You Need To Know - Forbes - October 8th, 2019
- Cryptocurrency: What to know about digital money - Fox Business - October 8th, 2019
- India must note that bitcoin is much more than a cryptocurrency - Quartz India - October 8th, 2019
- The Best Way to Play Bitcoin and the Cryptocurrency Market - The Motley Fool - October 8th, 2019
- 'We're closer than we've ever been' to bitcoin ETF approval, says Bitwise head of research - CNBC - October 8th, 2019
- The World's View of Cryptocurrency and Blockchain Is Rapidly Changing - Times of India - October 8th, 2019
- Have at It, Libra: Theres No Apple Cryptocurrency on the Horizon - Blockonomi - October 8th, 2019
- Cryptocurrency firm slapped with cease-and-desist after impersonating registered financial adviser - The Next Web - October 8th, 2019
- International exchanges campaign against UK cryptocurrency derivatives ban - The Next Web - October 8th, 2019
- 7 Top Cryptocurrency Traders to Follow on Twitter - BeInCrypto - October 8th, 2019
- Cryptocurrency buying and selling and how it works - What Investment - October 8th, 2019
- How Adoption Of Cryptocurrency Stablecoins Can Open Access To The 1.7 Billion Unbanked and Poor - Forbes - October 8th, 2019
- This Cryptocurrency Just Surpassed Bitcoin In One Key Adoption Metric - Forbes - October 2nd, 2019
- Will Facebook's Libra Overtake Bitcoin Cryptocurrency And The Ethereum Blockchain? How Will It Work? - Forbes - October 2nd, 2019
- Bitcoin has a massive carbon footprint. This clever new cryptocurrency doesnt - Digital Trends - October 2nd, 2019
- The Potential and Reality of Cryptocurrency in Video Gaming - Finextra - October 2nd, 2019