Digital Currency: Battle Between China's Digital Yuan and Facebook's Libra
Two digital currencies are set to challenge the established dominance of currencies like the US dollar and the euro - the Chinese Yuan digital currency and Facebook's Libra (now rebranded as Diem). Despite their fundamental differences, both aim to revolutionise the financial landscape.
Chinese Yuan Digital Currency
The Chinese Yuan digital currency, also known as the digital yuan, is a central bank digital currency (CBDC) developed and controlled by China's People's Bank of China (PBOC). It operates on a centralised, non-blockchain system for domestic retail transactions, with state oversight and real-time gross settlement [1].
Yuan-backed stablecoins, an extension of this digital currency, would integrate blockchain features via China's domestic enterprise blockchain platforms for international use. These stablecoins would be fully backed 1:1 by offshore yuan reserves, primarily in Hong Kong, allowing China to bypass strict capital controls and create a hybrid model that supports global liquidity with regulatory supervision and auditability [1][4].
The Chinese government is strategically pushing yuan digital assets as part of a broader plan to internationalize its currency and challenge US dollar hegemony in global trade and payments [2][4]. The yuan currently holds a small share (~2.88%) of global payment currencies, so these digital initiatives represent an effort to expand usage and adoption in international markets and potentially reduce reliance on the dollar-based financial system [2].
Facebook's Libra (Diem)
Initially proposed as a global digital currency backed by a basket of fiat currencies and assets, Libra aimed to support cross-border payments with lower fees and greater speed than traditional systems. It relied on a permissioned blockchain governed by the Libra Association, including Facebook and other partners [5].
Libra/Diem's primary focus is on digital global payments, particularly for unbanked and underbanked populations. Its market impact depends heavily on regulatory acceptance and integration. However, the project has faced significant regulatory scrutiny and challenges globally around monetary sovereignty, KYC/AML compliance, and governance, leading to iterative redesigns including single-currency stablecoins and greater regulatory oversight attempts [5].
Comparison and Potential for Global Dominance
| Aspect | Chinese Yuan Digital Currency | Facebook’s Libra (Diem) | |----------------------------|------------------------------------------------|--------------------------------------------| | Issuer | Chinese Central Bank (PBOC) | Private consortium led by Facebook | | Architecture | Centralised CBDC with emerging blockchain layers| Permissioned blockchain governed by association | | Regulatory status | State-sanctioned, in advanced pilot phases, potentially approved stablecoins soon | Regulatory challenges delay widescale rollout| | Backing | 1:1 backed by offshore yuan reserves | Backed by a basket of fiat and assets | | Market positioning | Aims to internationalize yuan and challenge USD dominance | Focus on digital global payments, especially for unbanked users | | Adoption potential | High state support and integration into cross-border trade networks | Dependent on regulatory acceptance and consumer trust | | Current market share | Small global share, growing government backing | Small market cap, low market penetration |
China’s yuan digital currency leverages sovereign power, established financial infrastructure, and regulatory backing to potentially reshape global currency usage, specifically in Asia-Pacific and cross-border trade [1][2][4]. The hybrid stablecoin approach may increase yuan liquidity offshore without breaching capital controls.
In contrast, Facebook’s Libra/Diem faces stiff regulatory headwinds and lacks sovereign authority, relying on network effects and compliance to build adoption. Its success depends on navigating global regulators and delivering trustworthy, accessible payment solutions at scale [3][5].
As of now, the Chinese Yuan is employed, while Libra is not yet accessible. The Chinese Yuan's size and power make it a significant player in the virtual currency space, with a GDP of $13.6 trillion, making it the second largest in the world. On the other hand, Libra, being a global cryptocurrency, has the potential to influence monetary systems all around the globe, particularly in underdeveloped nations.
Both the Chinese Yuan and Facebook's Libra have concerns regarding security and privacy, but the Chinese authorities have significant influence over the Chinese Yuan due to it being controlled. Libra, being decentralized and overseen by a separate entity, potentially increases its adaptability and flexibility to many nations' demands.
In terms of potential global dominance, the Chinese yuan digital currency ecosystem shows stronger potential due to state backing, strategic geopolitical intent, and deeper integration with existing financial systems. Libra/Diem remains an innovator, but it faces regulatory and sovereignty concerns that could hinder its success.
Online gaming platforms could capitalize on the growing interest in digital currencies by integrating yuan-backed stablecoins and Facebook's Libra (Diem) as payment options for in-game purchases, potentially reducing transaction fees and increasing user convenience. This alignment with fintech trends could contribute to improved player engagement and retention.
Furthermore, as both the Chinese Yuan digital currency and Facebook's Libra aim to revolutionize the financial landscape, they have the potential to significantly affect the technology and finance sectors in general-news, causing shifts in the balance of power and challenging established norms, particularly in cross-border transactions and payments. This transformation could also drive the development of new products and services in the online gaming industry, catering to the increasingly diverse demands of virtual currency users.
