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Central banks are now consistently looking to release their own centralized digital currencies. While these assets are nothing like bitcoin – the latter gives financial independence to its users, while the former currencies are controlled by individual firms – it’s likely that these coins will all get in the way of each other, and that the likes of both bitcoin and Facebook’s Libra will be competing head to head with many of these bank-issued currencies.
Libra Is Scary to Most Banks
One of the primary countries to already release a bank-issued form of crypto is China, which has already stirred a pilot program for its coin by having American stores such as Subway and Starbucks within its borders accept the digital yuan as payment for goods and items. The U.S. has also discussed the idea of issuing a bank-issued cryptocurrency, though not much has come of these discussions yet.
Former governor of the Reserve Bank of India Raghuram Rajan believes that all these coins will soon be in a heavy battle for dominance. In an interview, he states:
I would like to think that [bitcoin and Libra] are also in competition with the central bank digital currency… The worry with Libra was that, in its early forms, it was on the one hand ambitious in what it wanted to do, but very vague in what the safety precautions would be.
Libra was first announced over a year ago in June of 2019. While the currency said a lot about what it would do, little detail regarding how it would come to be and what it would potentially do to protect customers and their private data was dispelled to interested investors and users throughout the world, which was a hugely missed opportunity.
Facebook has been embroiled in scandal for the past several years. Ever since the company was caught selling private data of users to third parties for advertising purposes through the Cambridge Analytica scandal, trust in Facebook has seriously fallen. If the company wanted people to take its new financial system seriously, it needed to dispel this information quickly, but answers haven’t really emerged.
What was even scarier was that Libra was potentially trying to become a global currency. It would be issued through a new wallet system that would allow people to potentially use Libra to purchase goods and services through Facebook. Several countries have garnered access to the social media platform, which would ultimately make Libra a worldwide asset.
Will the Competition Be Fierce?
Rajan says that Libra is a nightmare for most banks, despite that it shares these firms’ centralized nature. He explains:
That’s the worst possibility for central bankers: something that’s going to take over the world, but we have no strong confidence in that risks would be contained… Different private currencies will do different things.