The Great Digital Currency Race


On June 18th, 2019 Facebook and 28 of the worlds largest companies, organizations and non-profits announced Project Libra. Libra, a price-stable cryptocurrency set to launch by 2020, would be governed by these founding members and at least 72 others by the time of launch as part of the Libra Association. The idea behind it was simple: to make access to financial resources a right for everyone and not just a privilege for the fortunate. To help bank the 1.7 billion+ people still shut out of the existing financial system. To make money simply work for the 21st century.

**Disclaimer** The libra cryptocurrency is still in the development phase and has NOT launched yet. Anyone trying to sell you any ‘libra’ is trying to defraud you. Only invest in cryptocurrrencies at your own risk.

The Seed

What started as the seed of an idea in the form of bitcoin, digital currencies are suddenly shaking the very foundation of the global economy. Financial markets are changing and governments and central banks are waking up to the fact that this isn’t a technology that can be swept under the rug. This is something that will change global power dynamics and reshape the world as much as Internet has. The first countries to realize the potential of this new technology, would reap the rewards for generations to come. There are risks, but the rewards are much, much higher.

We just need to ensure that the ‘right’ people, companies and countries are paving the way in this new world. And it’s going to take a digital currency being launched by China for people to realize it.

No lovin’

Facebook’s libra project was met with little fanfare from central banks and governments around the world. The thought of relinquishing the power to handle monetary policy to a consortium of global organizations and non-profits went down like a shot of vinegar. Monetary policy was something that had typically ONLY been handled by central banks and governments around the world, so they were less-than-thrilled about the announcement. But if bitcoin, in its 10 years of existence, showed the world that a viable freemarket currency could exist, controlled by open-source computer code instead of central banking policies, then libra was its validation.

China’s Central Bank Digital Currency

Politicians and governments may not have taken kindly to the libra cryptocurrency announcement, but that’ll change when China issues their own digital currency, something that’s been in research and development by the People’s Bank of China for the past 5 years. The rumored launch of their central bank digital currency, or CBDC for short, is set to happen before the end of the year. And will kickstart the next great government superpower race. The race to establish supremacy in this new digital frontier.

The Bretton Woods System

In 1944, central banks and governments around the world established the bretton woods system. This system essentially made the US dollar the global reserve currency and central banks in established economies around the world pegged their currencies to the USD and adopted US monetary policies. By 1973, the bretton woods system formally collapsed, though the US dollar maintained it’s largely predominant position where it sits today.

Diagram from show just how important the USD is as the global reserve currency

The US dollar has long been the standard, but currencies have never had to compete on a technological standpoint before. China’s CDBC (digital currency) may be testing that.

Winds are changing…

Just last week, central bankers from around the world gathered in Jackson Hole, Wyoming to discuss economic and monetary policy. Though most of us probably couldn’t imagine a more inane and boring topic, there was something very radical announced at the meeting. Mark Carney, the governor of the Bank of England, proposed an idea for a new global financial system that reduced central banks dependence on the USD as the reserve currency. He suggested:

“A digital currency could dampen the domineering influence of the U.S. dollar on global trade.”

Carney further went on to state that the digital currency could act as a sort of “Synthetic Hegemonic Currency” or in other-words a basket of central bank issued digital currencies. It was a radical idea going against the traditional US dollar-focused central-banking strategy. It also happened to sound very similar to what Facebook and the Libra Association were proposing with their new cryptocurrency.

Why it makes sense:

From a business and financial perspective, we’re all taught to diversify our assets. A well-diversified portfolio is one that produces positive results in good times and in bad. It’s financially irresponsible to throw all your eggs into one basket. Though sometimes one gets lucky, more often than not it leaves you broke, beaten and battered. What Mark Carney and the Libra Association are suggesting is to not throw all our eggs into one basket. To not rely on any one country to set global monetary policy. To diversify our risk and diversify our financial assets.

A New Financial Model for the 21st Century

Cryptocurrencies, specifically stablecoins like libra, give us the opportunity to create supra-national currencies. A freely trade-able, price-stable, global currency backed not by one countries monetary policy but a basket of the world’s most stable currencies and financial assets. A currency backed by the yen, the euro, the pound, the dollar and any other proven, price-stable financial assets voted on by the founding members. A diversified currency to minimize global financial risk and maximize the potential to bank the people in countries who need it most. People in places like Venezuela or Zimbabwe.

The Digital Yuan (Renminbi)

A continuation of the bitcoin vision, the libra cryptocurrency aims to be the first democratically-controlled global Internet currency created. China, with their soon-to-launch, digitized version of the yuan, aims to take that same idea, but put it in their hands of their central bank. Something that should scare most governments and politicians enough to want to throw there full support behind the libra project.

Central Bank Digital Currency

China is going to be first to the punch in launching a central bank digital currency. They realized the potential of this technology years ago and actively set about working to research and develop it. The rest of the world has been caught with their pants down, and the worst part is, have yet to realize it. When the central bank of China issues their digital currency, most likely by the end of the year, a new financial system will begin to emerge. A system where the yuan isn’t used just within China’s borders, but on a global scale. Where the yuan can be exchanged on the Internet without the need for a bank account.

First-Mover Advantage

A CBDC would give China a tremendous first-mover advantage in establishing a foothold in this new digital economy. A country with a long track record of human-rights abuses, privacy violations, censorship and communist policies could suddenly find themselves able to market their currency outside their borders into a new global marketplace for the yuan. If it served the financial needs for a large segment of the underbanked population of the world, then people and small businesses are going to start using and transacting with it. Suddenly, the Chinese yuan (renminbi) starts to play a whole lot larger role in the global economy. A position the US dollar has typically held, and what Facebook, the Libra Association and central banks around the world are beginning to realize.

A Freemarket System for Internet Value Exchange

If we shift to a freemarket system where Central Bank Digital Currencies (CBDC) compete with one another on a global scale, then a currencies relevancy is based only on the soundness of the monetary policy and it’s usefulness as a tool for exchange. People and small businesses will choose to use and transact with whatever digital currency offers them the most stability, trustworthiness and future spending power. And China has the head start. A global financial system flowing through China’s central bank and financial system. Suddenly, libra doesn’t sound so bad after all.

Cameron GrandPre

Cameron GrandPre is a freelance writer focused on decentralized finance, cryptocurrencies and other fintech innovations. He's passionate about small business adoption of bitcoin and stablecoin assets, like Facebook's Libra project.

One thought to “The Great Digital Currency Race”

  1. Let’s have a closer look what actually a stablecoin is. Stablecoins are digital representation of fiat money. A digital object that represents a unit of account of underlying fiat currency. There is no digital value added to a stablecoin, it only represents the value of the fiat that is attached to, therefore representing the exact same underlying monetary policy of that currency system. There is no extra stability added to it because it is running from the same centralized system as fiat currencies. There is no extra trustworthiness because it is not decentralized. And it does not guarantee future spending power because it is not digitally scarce. The biggest and arguably the only benefit stablecoins can offer us is the scope of the impact of participation in global marketplace. Digital currencies allow anyone to participate in global markets and so increasing economic activity however stablecoins does not offer aditional stability or trustworthiness because they operate with the same monetary policy as fiat. And it is exactly these monetary policies that brought us the financial crisis of 2008 and keep adding more debt and financial inequality to our economic system. You can either create a digitally scarce cryptocurrency in which case the value of that currency is going to increase over time thus making it a perfect store of value or you can create a stablecoin based on inflationary policy of central banks and see the value of this coins spiraling down out of control like a venezuelan bolivar.

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