Facebook’s new Libra project has given China cryptocurrency policy makers a shot in the arm. If Facebook launches a coin to buy and sell things on its platform, how long before one of China’s biggest digital payments operators gets one too?
The South China Morning Post reported Monday that the People’s Bank of China (PBoC) is looking into an officially sanctioned crypto after banning them two years ago. If they do it, there is no better place to start than WeChat, the Tencent-owned social media platform that is as much a basic messaging program as it is a digital payments system.
The PBoC is worried that Facebook’s Libra could potentially pose a challenge to Chinese cross-border payments, monetary policy and financial sovereignty.
“If Libra is widely used for payments … would it be able to function like money and accordingly have a large influence on monetary policy, financial stability and the international monetary system?” asked Wang Xin, director of the Chinese central bank’s research bureau during a conference at Peking University’s Institute of Digital Finance.
Facebook released a white paper in June about its blockchain-based payments system and crypto project.
Globally, WeChat has 1.1 billion monthly active users, a metric social media companies like to use because it better showcases who is using the platform rather than just who has an account on the platform but is not a regular user.
By comparison, Facebook is twice as large with 2.3 billion.
That’s a ton of people potentially using a currency issued by a corporation and not a country.
WeChat already has a payment system, but its transactions are done in Chinese yuan and through Chinese bank accounts. Tecent’s WeChat Pay, launched in 2013, has over 900 million users, according to the company.
WeChat Pay has been growing strongly in China, as well as overseas, though it is mainly used by Chinese expats and travelers. Alibaba’s Alipay is its biggest rival, though WeChat has the Facebook-like platform. Both have near-equal market share in China.
AliPay is part of Alibaba Group’s financial arm, Ant Financial, the world’s largest privately held fintech company.
However, it looks as if the PBoC put the brakes on WeChat developers in May, even considering copying Facebook’s Libra project until regulators got a better handle on regulating it.
Facebook opened a Pandora’s Box in China. It is unclear if Tencent was forced to ban the use of cryptocurrency on WeChat, or if they came up with the idea themselves. It is hard to believe that WeChat, which grew out of copying the social media models of the United States, would straight-jacket itself like that following the Libra news.
The same would hold for AliPay, which has a sizable market share in Japan.
Facebook was unsuccessful in the past with a payment system, but their cryptocurrency project is an entirely different animal. Some have already compared it to the digital currency version of WeChat Pay and AliPay.
Like WeChat Pay, Libra would allow for person-to-person money transfers, as well as online and in-store payments.
Their payment features are all embedded in the dominant social media platform that owns billions of customers.
Like WeChat Pay, Libra can integrate payment features to their entire ecosystems across advertisements, entertainment, social media and e-commerce. By owning the payment transaction and financial data, they can generate even more value and more rapidly expand their payment system to other industries.
The main difference is that WeChat Pay is Chinese yuan-based, and Libra plans to allow for cross-border payments, making it a bit like a Visa and Mastercard (which have partnered with Facebook on this).
WeChat Pay owns payment licenses with Chinese regulators, while it is unknown if Facebook will be able to do the same with in different countries.
That means that Chinese regulators can take their time on whether or not to christen their own cryptocurrency. Libra might not take flight. At least not in a way that would threaten Tencent’s hopes to expand WeChat Pay throughout Asia, where Facebook is popular.
“Libra is unlikely to succeed since the obstacles it faces are overwhelming,” says Meng Liu, an analyst with Forrester in Beijing. His obstacles include existing e-payment technologies that he thinks are “good enough,” including the already existing AliPay and WeChat Pay.
But that analysis could quickly sound a bit like the guy with the 486 hard drive Compaq computer saying this is all he will ever need for the home PC.
Assuming the use of a cryptocurrency is like a coupon, then allowing the holder to buy or sell with discounts to the nationally issued currency makes for an attractive proposition.
China, meanwhile, looks like it will revamp its studies on how to regulate a nationally sanctioned cryptocurrency in order to have everything in place when Libra launches, perhaps successfully.
“Facebook is really trying to do this, and it involves an incredible amount of hubris,” says Will Martino, founder and CEO of Kadena, a single-stack public and enterprise distributed blockchain platform. “I find it all unfeasible. It looks like they are trying to declare themselves a sovereign state with their own currency … and that’s crazy.”
That’s what China is worried about. Not just from Facebook, but from its own tech giants, led by Tencent and Alibaba. If they have similar projects, they are surely secretive and will only come to light if Beijing regulators have already given it their blessing.