Huang Qifan, vice chairman of the China Center for International Economic Exchanges (CCIEE), says he doesn’t think the Facebook-led Libra stablecoin project will be successful.
That would leave the door open to the country’s central bank to create a powerful government-backed digital currency on the world stage.
Huang says the People’s Bank of China is getting closer to launching its blockchain-enabled financial technology and will most likely make China the world’s first country to issue a usable digital currency.
Huang, whose comments came during the Inaugural Bund Financial Summit of 2019 held in Shanghai between October 27 – 29, says that the existing infrastructure used by enterprises for payments and settlements must be updated.
Huang points out that the international liquidation of the Chinese yuan still depends heavily on SWIFT (Society for Worldwide Interbank Financial Telecommunication), the global leader in facilitating secure bank-to-bank messages, and CHIPS (Clearing House Interbank Payments System). He also claims that the two financial systems are used by the US to control the global economy. Says Huang,
“SWIFT is an outdated, inefficient and costly payment system. Since the establishment of SWIFT 46 years ago, the technology has been updated slowly and the efficiency has been relatively low. International wire transfers usually take 3-5 business days to arrive.
Large remittances usually require paper documents, which presents additional difficulty for processing large-scale transactions effectively. At the same time, SWIFT usually charges a fee of one ten-thousandth of the settlement amount, and has obtained huge profits by virtue of the monopoly platform.”
By leveraging SWIFT, the US can achieve political objectives and maintain control over the global financial system. For example, in 2017, US Treasury Secretary Steven Mnuchin threatened to block China from the financial system if it didn’t abide by new North Korea sanctions.
Said Mnuchin,
“If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the U.S. and international dollar system, and that’s quite meaningful.”
He added,
“…economic warfare works”.
But a lot has changed since 2017. The rise of digital payments, blockchain-based infrastructure, cryptocurrencies and fintech solutions for banking services are rewriting the rules of the game.
Adversaries seeking to skirt the weaponization of the US dollar are using technology to build alternatives to the current US-dominated system. According to a report by Seeking Alpha,
“Documented de-dollarization efforts are now underway in China, Russia, Venezuela, Iran, India, Turkey, Syria, Qatar, Pakistan, Lebanon, Libya, Egypt, Philippines and more.”
Huang believes China will prevail and that Libra, a potentially formidable rival with a user base of over two billion, is a no-go.
“In the digital age, some companies tried to challenge sovereign currency by establishing financial products such as Bitcoin and Libra. This decentralized currency based on blockchain is out of sovereign money. The basis of the issuance cannot be guaranteed, the value of the currency cannot be stabilized and it is difficult to truly form social wealth. I do not believe that Libra will succeed.”
Huang says that the best way for sovereign countries to reinforce monetary distribution rights is by having the central banks issue national digital currencies because this type of medium of exchange can improve security and provide greater convenience.
Sovereign digital currencies may also be linked to sovereign credit with national GDP, fiscal revenue and gold, Huang suggests. While such solutions are highly centralized and can bring efficiencies to the traditional banking system, they’re counter to the core principles of Bitcoin and cryptocurrencies that reject corporate controls, middlemen, third-party intervention and government oversight.
Financial leaders at the Bund Summit also discussed other issues related to financial inclusion, fintech and challenges faced by the evolving global economy.
According to Tu Guangshao, executive chairman of Bund Summit Organizing Committee,
“The global economy and finance are now in a new environment and facing new challenges. Against the backdrop of economic downturn, rising protectionism and turbulence in the financial ecosystem, it is even more necessary to communicate, seek consensus and jointly tackle the common challenges. Globalization is inexorable and global financial cooperation needs to move forward.”