The Breakdown - Libra vs. China: The Global Digital Money Wars Heat Up

Episode Date: September 6, 2019

One of the most important global economic battles of our time is the battle to create new standards for global digital money. While bitcoin has been quietly building its case for the last decade, the story of the last few months has been all about the new contenders in private coins led by Libra and state-backed CBDCs, most notably China. On this edition, we look at the latest - new reports on Facebook lobbying hires, ECB antagonism, and a serious sense of urgency on the part of the People's Bank of China.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another Crypto Daily 3 at 3. All right, guys, happy Friday. First Friday in September. We're back to school. We're back to work. And today I wanted to focus on actually one topic instead of three, maybe a couple different dimensions of it, a couple different pieces of news.

Anyone who watches or listens to this knows that I think that this, the story of the summer, and what likely is one of the big stories going forward, is the growth in the battle for digital global. money, right? We saw the launch of Libra. We saw the launch of Libra accelerate China and everywhere else's, frankly,'s attempt to build central bank digital currencies. We are seeing a global competition around different approaches to government-integrated currencies, as witnessed by Binance's Venus announcement. I think this is basically one of the central battlegrounds for

digital money, right? I previously have called it there's sort of this trifurcation of crypto into permissionless chains like Bitcoin, permission kind of corporate rule chains, and then government currencies. And you're seeing the blending and the convergence of many of them. And so I wanted to take a quick peek into what's going on right now with Libra and with China based on some recent things that we've seen. So first of all, some interesting news around Libra. It's been kind of quiet since the hearings last month. But we're seeing some amount of activity. So the block reported that Facebook had hired two more lobbyists for the Libra cryptocurrency initiative, which squares kind of with the sense that most people have that the biggest challenge right now

for Libra is regulatory, right? In fact, that's when we saw Binance Venus launch a couple weeks ago, the major thing that we discussed was the extent to which that was trying to arbitrage the potential that Facebook just gets mired in this endless global regulatory battle and instead creeps in and basically says, hey, we have a better obvious. for building your central bank digital currency. You can work with us to build your own kind of localized, regionalized version of Libra without having to surrender authority to Zuckerberg.

That surrendering authority is at the heart of another report that the European Central Banks, Yves Meersch, is one of their executive board members, and he was speaking out this week against Libra. He said, Libra could reduce the ECB's control over the euro, impair the monetary policy transmission mechanism, by affecting the liquidity position of euro area banks and undermine the single currency's international role.

And so this is kind of like what we heard a little bit in the hearings in the U.S., where some number of senators and congressmen called into question what the Libra would do to the U.S. dollar's role as the global reserve currency. The European Central Bank is bringing up similar concerns here. Nothing new particularly, but again, just there's kind of this constant background noise. and hum of skepticism and worry around Facebook and Libra. Then you have JP Morgan, who, by the way, themselves are developing their own JPM coin or JP Morgan coin or whatever it's going to be called.

So we're certainly not an unbiased observer. But they came out with a report basically that said to their clients, stable coins in Libra in particular have the potential to grow substantially and ultimately shoulder a significant fraction of global transactional activity. However, as currently designed and proponents, they do not take into account the microstructure of operating such a payment system. The risk of payment system gridlock, particularly during periods of stress, could have serious macroeconomic consequences.

So this is interesting because this is an argument against the current kind of proposed architecture of Libra on the basis of how it's designed and not so much in terms of having a horse in the global reserve currency race, but in fact in terms of how. it will be able to handle the kind of the load and bear the load of the global digital transaction system. So again, lots and lots of, you know, just Facebook since Libra was announced has been assailed from all sides. And that continues.

And that's kind of the story here is that that has been continuing. Now Preston Byrne pointed out, and I thought this was a perfect way to sum this up, the two major players in the surveillance market enter into a war of words. So basically, you know, one of the distinct phenomenon, that occurred post-Libra as we saw a major uptick in how China was discussing its currency. And this tit for tat started right from the first hearings from David Marcus as well, right? If you remember at the first Senate hearing and then more explicitly at the congressional hearing, when Marcus testified, he basically was saying that if you don't let us do it, if we don't do this,

if we don't go out and create a digital money, someone else will. and he all but spelled it out that to someone else he was referring to was China. And then later, about a week or two later, after something had come up in the news about China developing their own central bank digital currency, he basically spelled it out even further. He was like, this is exactly what I was talking about. So since then, we saw a couple different moments. A former People's Bank of China governor said that they should accelerate their efforts to compete with Libra.

And then just last month, or maybe at the end of July, beginning of August, we had a lot of an official who's currently at the People's Bank of China and their payments department, who actually said that it was nearing readiness, right? That after five years of research, this had come up. So we got more comments from that same official this week, saying basically comparing China Central Bank digital currency to Libra and saying it compared favorably as it related to the technology. He said, let me find this exact quote.

Why is the central bank still doing such a digital currency today when electronic payment methods are so developed? It is to protect our monetary sovereignty and legal currency status. We need to plan ahead for a rainy day. So basically he's answering like, why do this when we chat and AliPay exist? It's because of the role of this currency, that it is an actual government-backed currency. So this hit Chinese papers today this morning, and then it got translated over into the American, especially the crypto press today. But that wasn't the only story this week around China and the Libra competitor. So Wolfie Zhao at Coin desk wrote a really interesting report that a lot of people were sharing.

China's crypto competitor is being built in a secret office with restricted access. And basically what this pairs out, I encourage you to read the whole thing. But what this spells out is the urgency, I guess you would say, of China bringing its central bank digital currency to market. since the Libra announcement, right? So the work has been expedited as Facebook unveiled June its vision for Libra. And so this is his source basically saying that ever since Libra, they've been just hustling to kick it up. And so this, I think, is what I meant by this title of China versus Libra, the digital money battle heats up. I think that this is, you know, the players are clear. It's just a question of what happens. And China is in a lot of ways, I think, trying to outflank in some ways.

Libra by getting out ahead of this of this monetary battle while Libra is stuck in effectively, you know, regulatory morass. So of course, China and the U.S. aren't the only players in this. And in fact, Libra isn't going to be probably the only player in the U.S. There are lots of other, I mean, I think what's happening right now is that every central bank, every government in the world is asking what its policy is going to be. And so we had kind of two very very divergent examples of that this week. You have Barundi, the central bank director, saying strong measures will be taken against crypto traders. So this is basically a banning of all cryptocurrencies. So it's kind of an aggressive position. But then meanwhile, you have the Marshall Islands

who has one of their ministers actually wrote an op-ed for Coin Desk this week, explaining why they were going to issue their own digital currency and how it was going to work. and they actually talk about some of the things that we talk about in the crypto community. So I want to read this passage. We chose to create a fixed money supply with fixed growth because fiat currencies can be remarkably unstable. For example, the Argentine peso recently fell 15% in a single day, while Venezuela's currency, for all intents and purposes, no longer functions at all. The policies of major central banks are not reassuring, as the gold and Bitcoin prices attest.

We as governments need to take a more sustainable approach to money and to not treat it as a limitless resource. Our money supply will grow at a sustainable 4% each year following a Milton Friedman's K% rule. New store value will be automatically distributed to the currency holders and the decentralized entities securing the network. This means that we in the government cannot modify the money supply and we cannot manipulate the value of our currency by printing more money. So this is interesting, not just as a CBDC experiment, but as kind of an economic philosophical standpoint, it's very similar to what a lot of folks, particularly in the Bitcoin community, are interested in. So, you know, the Marshall Islands is a tiny island nation. It's not

going to send shockwaves around the world. However, it will be interesting to see if what happens, does this create more stability? Does this create interest in this digital currency more than they had previously experienced? So there's a lot here that's going on. And the point of today is not so much to draw conclusions, but more just to keep you guys informed and up to date with the latest and what's happening. Like I said, I think this is some of the most important conversation, one of the most important conversations happening right now, and I think it's going to continue to be so. So a couple more resources I wanted to suggest. One, Michael Casey, who is on the Board of Advisors at Coin Desk, and has written a bunch of books about this. He wrote about the recent

speech from a couple weeks ago where Mark Carney, the England Bank of the England Bank governor, suggested a synthetic hegemonic currency. Basically, he suggested that the central banks all get together and create their own version of Libra, their own kind of basket of currencies, you know, to take out the USDA as the global currency reserve. Casey has actually a lot to say that there's potential. ways to recommend that or reasons to recommend that. He also talks about the idea of cryptocurrency or kind of digital currency interoperability instead of just a single new currency. So I think it's super, super interesting and worth a read. And then finally, you've got Peter McCormick

who's in the middle of a series on Libra, which I think is really, really excellent. Peter has been innovating a lot in terms of this idea of podcast series and bingeable content, which is something I'm super passionate about. And he just dropped an addition today with Preston Byrne, who I quoted earlier and Jake Chavinsky, on regulating Libra. So it says we discuss is Facebook money, government money. The danger of Facebook and Libra deplatforming users is Facebook shielding itself from regulation and Libra privacy. So I actually haven't had a chance to listen to that yet.

However, I feel entirely confident recommending it just on the basis of both Peter's work and his two excellent guests. So that's it for today. I think it's a super exciting time. It's interesting, if nothing else. I guess I would be remiss just since it's Friday and the much anticipated day backed has begun its deposits and withdrawals for its warehouse in anticipation of its Bitcoin futures launch later this month on the 23rd. It happened, as they said, as planned on September 6th, which is today.

So that's exciting to see. But anyways, guys, that's it for me for this week. Hope you had a great week. Hope you have a great weekend coming up. It is my birthday tomorrow, September 7th. So I will be enjoying not taking a day off that I wouldn't normally because Long Read Sunday has to come out. But anyways, thanks for hanging out. Thanks for watching.

Thanks for listening. And I will catch you guys on Monday. Peace.