Chinese Digital Currency Yuan vs Facebook’s Libra: What’s Better?

When it comes to digital currency, is Yuan better than Libra?

Compared to Libra's complicated basket of fiat-backed, multiple-stable coins design, Yuan is simply a digital currency. It aims to get rid of paper and coin-based cash while providing traceability and a good user experience. And it wants to do all that without negatively impacting China's monetary and financial systems. The goal of Yuan is first and foremost to remove paper friction, while Libra aspires to be a global platform for "digital programmable currencies." Yet despite the design differences, both parties love to play politics and publicly denounce each other as a threat to their own country's position. Mark Zuckerberg was particularly skilled at this when he made the case that if the US doesn't catch up and create a digital currency, China's digital yuan will usurp the dollar and achieve currency supremacy. However, this would be quite a turnaround since China's yuan only makes up just 2% of global payments and reserves, whereas nearly 90% of international transactions were in U.S. dollars in 2019.

China's Yuan

The People's Bank of China (PBOC) has been spearheading work on the digital yuan, a so-called central bank digital currency (CBDC) that aims to replace some of the cash in circulation. Real-world trials are already underway in the world's second-largest economy. The digital yuan or its official name — the Digital Currency Electronic Payment (DCEP) is made with an aim to digitalize banknotes and coins in circulation. The Chinese market is already very advanced in cashless payments. The digital yuan would be a way to speed that process up. Fan Yifei, deputy governor of the PBOC, said last year that there is a "pressing need to digitalize cash and coin" as producing and storing these currently is expensive. In an article in state-backed publication Yicai Global, Fan said cash and coins are not easy to use, they're easy to counterfeit and because of their anonymity, could be used for illicit purposes.

Facebook's Libra

Facebook has finally revealed the details of its cryptocurrency, Libra, which will let you buy things or send money to people with nearly zero fees. You'll pseudonymously buy or cash out your Libra online or at local exchange points like grocery stores, and spend it using interoperable third-party wallet apps or Facebook's own Calibra wallet that will be built into WhatsApp, Messenger, and its own app. Today Facebook released its white paper explaining Libra and its testnet for working out the kinks of its blockchain system before a public launch in the first half of 2020. Facebook won't fully control Libra, but instead get just a single vote in its governance like other founding members of the Libra Association, including Visa, Uber, and Andreessen Horowitz, which have invested at least $10 million each into the project's operations. The association will promote the open-sourced Libra Blockchain and developer platform with its own Move programming language, plus sign-up businesses to accept Libra for payment and even give customers discounts or rewards.

The Comparison Between the Two

Even though China is ahead in developing the Digital Yuan, the other participating countries also have the ball rolling in developing their own government-backed digital currencies. Moving forward, this network will have to develop viable ways to manage 2 government-backed digital currencies in each country. Another doubt is that the Pan-Asian Digital Currency is just starting out while their rival Libra is almost done with development and close to release. Thus, it places doubt on whether China's efforts can be launched in time to defeat its rivals.