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So why is Facebook’s Libra a threat to China?
In China, mobile payments capture vast troves of data. It’s estimated that nearly 2 billion accounts are registered between the two major Chinese platforms, Alibaba's Alipay and Tencent's WeChat Pay.
Chuanwei Zou, chief economist at Bitmain – a company that sell equipment to mine cryptocurrencies said…
"China relies on the mobile payments sector immensely. We have had a long lead time [over Libra] with the success of WeChat and Alipay, but Libra represents a huge threat on mobile payments".
And that threat is real.
Facebook has around 2.5 billion users – more than twice the amount of WeChat and more than both WeChat and Alipay combined. That gives Facebook an immediate advantage in the race for a global cryptocurrency.
If Facebook can attract and turn most of its current users of Facebook and WhatsApp into Libra coin holders and users, it could immediately overtake all of what China has done in terms of building up users.
In addition, Libra’s will draw its value from a combination of major currencies, like the US dollar. Something China also fears.
Wang Xin said, if Libra is mostly pegged to the US dollar, China would be at a disadvantage.
“It would bring a series of economic, financial and even international political consequences.”
That’s why I wouldn’t be surprised if China launches a digital yuan.
There are murmurs that China is reportedly in the process of developing a digital currency of its own. However, the exact details of its use cases remains unknown.
A digital currency would allow China's central bank to record every single transaction with high precision in real time. It would also further cement China's dominance in financial technology (as Tencent and Alibaba are two of the biggest tech companies). And more importantly…
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China’s digital currency could hurt the dominance of US dollar!
Think about it.
If China were to create a digital yuan, which could be traded, held and transferred just like any other cryptocurrency, it could get mass adoption all around the world…Especially in “unbanked” areas with huge populations.
Earlier this year, Business Standard noted an interesting statistic from the World Bank’s Global Findex:
China is home to 225 million adults without a bank account, India has 190 million. They are followed by Pakistan (100 million) and Indonesia (95 million).
These four economies, together with three others – Nigeria, Mexico and Bangladesh – are home to nearly half the world’s unbanked population”.
Even more interesting…
Globally, 1.7 billion adults remain unbanked, yet two-thirds of them own a mobile phone that could help them access financial services. Digital technology could take advantage of existing cash transactions to bring people into the financial system.
So there are 1.2 billion people in the world who own a mobile phone but not a bank account.
If those 1.2 billion people suddenly got access to a digital yuan, then China’s national currency would become a real rival to the US dollar’s dominance.
Remember, having the world’s dominant currency puts your country in a supreme position of economic power. It doesn’t only demonstrate a country’s influence globally, but also reflects the competitiveness of a country's economy.
So, if China started challenging the US dollar for world dominance, how would the US retaliate?
One way is to beat them at their own game by creating a digital US dollar.
So what does this all mean?
Well, the switch over from traditional money to national cryptocurrencies could happen faster than anyone realises.
Who knows, in the next five years, people will be able to freely trade between cryptocurrencies like bitcoin and national cryptocurrencies like a digital US dollar/yuan. After that, there’s no telling what could happen.
But one thing’s clear: Whether you love them or hate them, cryptocurrencies are here to stay.
See you next week,
Managing Editor, Real Wealth
There are over 2,400 cryptocurrencies available right now. 99% of them will fail and only a handful backed by REAL technology, will thrive. Which cryptos are these? The answer lies here.