Douglas Arner et al on After Libra, the e-CNY and COVID-19: the New World of Money and Payments (LSE Business Review)

"After Libra, the e-CNY and COVID-19: the new world of money and payments"
LSE Business Review

Published in February 2022

Synopsis: Facebook’s stable cryptocurrency, COVID-19, and China’s central bank digital currency, the e-CNY, have caused a reorientation of monetary and payment systems around the world. Ross P. Buckley, Douglas W. Arner, Dirk A. Zetzsche, and Anton Didenko envisage three emerging design choices for these systems, reflected in centralised, decentralised and hybrid models. They predict that the advent of national monetary competition through major economies’ sovereign digital currencies will be one of the defining developments of the next decade. 

Introduction: Over the past three years, three catalysts have caused a fundamental reorientation of domestic and international monetary and payment systems: Facebook’s proposed stablecoin (Libra / Diem), China’s central bank digital currency (the e-CNY), and the COVID-19 pandemic. These catalysts are in stark contrast to previous disruptions and are the focus of our recent paper. Facebook’s announcement of Libra in 2019—its own stable cryptocurrency combined with a global digital payment system and digital identification system via Facebook/WhatsApp/Instagram Pay—was the first catalyst of sufficient scale and potential to lead central banks to revisit their previous hesitancy about sovereign digital currencies. In the face of strong financial regulator hostility, Facebook redesigned their proposal to mitigate its impact on sovereign monetary policy and renamed it Diem. However, the redesign failed and Facebook (itself now renamed Meta) sold Diem in late January this year for the bargain basement price of $182 million. What was once anticipated to heavily disrupt the global financial system and pose a real threat to existing payments infrastructure is now all but dead. If Diem ever emerges from the ashes, we expect this to be in remittances, as those working offshore seek affordable ways to send money home. Despite its failure, the Libra proposal nevertheless marks an important point in the history of money and finance.  ... Click here to view the full text.