On the 23rd of October, the United States House of Representatives Financial Services Committee heard testimony from the CEO of Facebook, Mark Zuckerberg.
This time, the focus was not on Facebook selling user data to advertisers or the highest bidder, but the potential threats that the new Libra Association could potentially bring to not only the US financial industry but to the global one as well.
The main topics of discussion were the compliance of Libra with the United States Anti Money Laundering laws as well as Know Your Customer policies. According to several representatives, most of the cryptocurrency wallets currently available on the market fail to comply with these rules and therefore do not fall under the FSC's regulation.
Libra Won't Launch Unless the US Is on Board
Zuckerberg guarantees that the Libra project will not launch fully unless all of the US regulations are not satisfied, meaning that he is completely fine with adhering to the AML and KYC rules that the government will impose.
However, it wasn't too hard to understand what kind of narrative Facebook's CEO tried to push during the hearing. That narrative was the threat that is now boiling in the far East, and that threat is the Chinese digital currency that the PBoC (People's Bank of China) is developing.
According to Zuckerberg, this digital currency will be a serious threat to the US' financial dominance across the globe. It may simply be impossible to combat if the US does not develop its own digital currency as well. Zuckerberg's arguments indicate a very simple goal. Why develop something new, when Libra is almost complete?
How the Chinese Currency Could Be a Threat
Many find it baffling as to why the Chinese Bank Digital Currency (CBDC) would be a threat in the global theatre. Isn't it supposed to be a counter of Libra's influence on the Chinese digital space? Technically it is. The PBoC would have never gotten the idea of creating a digital currency (at least not yet) if Facebook had not started working on the Libra project.
Therefore, almost every financial analyst believed that this new currency would only be relevant in the Chinese economy rather than be used on a global scale. However, the distribution of these "coins" to large Chinese banks as well as tech companies, which are slowly encroaching on foreign markets, seems to show that the CBDC has much larger aspirations.
But before the currency reaches the global markets, it needs to somehow dominate the region first. This means that the threat will cover the HKD, the JPY, the KRW, and the AUD.
The Australian Dollar is in particular danger. Despite the fact that there have been multiple cases of Chinese nationals smuggling funds out of the mainland into Australia, it would still ultimately lead to the purchase of Australian Dollars, thus helping the currency remain stable or at least increase its chances in the fight against inflation. We're talking billions of dollars worth of Chinese Yuan being exchanged for Australian Dollars here. No matter how large the economy is, it's bound to take effect at some point.
Should the CBDC become a primary medium of exchange in China, it could become very hard to take those funds outside of the Mainland and into Australia, thus limiting the demand and potentially increasing inflation rates. This would especially be hurtful for companies that provide bonuses and promotions, as wagering seems to be the primary attraction for rich Chinese nationals to go to Australia.
Threats to Developing Nations Outside of the ASEAN Region
China's influence on the CBDC will most definitely manage to go past the ASEAN region and affect the western developing nations as well. With the new Belt and Road Initiative, China is slowly but surely starting to get a grip on the dividing line between Europe and Asia, thus cementing its foothold as an influential player in local politics.
The developing nations are quite morally grey when it comes to FDI. They may overlook the difference between the morals of democracy and that of the CCP, thus bringing both the USA and the EU a serious competitor in the region.
According to several financial analyst companies, Libra is currently the strongest weapon that the USA could potentially posess to combat this influence from China, and the EU may soon start considering launching a digital Euro.
Therefore, even if the involvement of actual cryptocurrencies may not be direct in the world. The political tensions between the West and the East could perpetuate the creation of alternative cryptos to digital currencies imposed by the state.
As soon as the United States approves of Libra, we can expect the "financial cold war for influence" to begin straight away. It's unknown who will walk away the winner in this struggle, but it's clear that all the developing nations caught in the crossfire should expect billions in FDI.