The week is marked by Facebook US Congressional hearing and the political reactions to Libra and the Bitcoin. Surely, most of the current volatility is due to the US political climate. A climate caused by the long-term implications of the Libra project on the stability of the financial system and the US dollar.
It seems the political US leaders are in panic mode. After POTUS Donald Trump tweeted about him not liking Bitcoin. Crypto CNBC host, Ran NeuNer, Revealed a bill draft
” To prohibit large platform utilities from being a financial institution or being affiliated with a person that is financial institution […]”
The USA is in full blown panic mode. They are under attack on 2 fronts.
Not only is their financial system being threatened by a new system where they lose control but now they also risk losing more power to the big tech companies.Their natural reaction is to draft pathetic laws pic.twitter.com/neL0VcioA1
— Ran NeuNer (@cryptomanran) July 14, 2019
China’s QQ Coin Case
The case of the QQ Coin is revealing. Created by Tencent, a Chinese consortium which runs WeChat and an instant messaging system called QQ. QQ coin was created back in 2002 and was initially devised to pay for online services such as virtual flowers for instant-messaging, ringtones for cellphones, magical swords, and online games, each QQ costing 0.1 yuan. QQ coins were initially non-refundable, at least that was the intention of the company.
In 2006 Tencent lost the control of this digital currency, as other online game companies beyond Tecent stated to accept QQ coins. These coins became a popular form of payment because credit cards are still not commonplace in China. QQ coins also became handy to be spent on gambling and adult websites.
In January 2007 the Central Bank of China declared a crack down on QQ Coin. “We will firmly crack down on virtual money if it is used to launder money,” said Li Chao, spokesman of the People’s Bank of China (PBOC). But the more the authorities tried to stop QQ coin exchanges, the higher their price reached, surpassing 70% increase in valuation in three weeks. Then Taobao, a Chinese version of eBay, decided to accept QQ Coins as payment despite government’s warnings. Also, Tencent was sued by the authorities for selling QQ Coins. Then, In June 2009, China’s Ministry of Culture and Ministry of Commerce had laid out an 11-point joint regulation for the Virtual Currency Market, limiting virtual money to be used within the platform of the company issuing it and only to purchase virtual items. The law also forbade the company to facilitate trades of virtual currency between users.
Currently, this digital money is not common, as it was substituted by new modern platforms, but QQ Coins are still available today, and they are a portion of the underground economy of China.
WeChat Pay and Alipay
Currently, in China, there are two digital payment giants: Alipay, belonging to the Alibaba e-commerce group, and WeChat Pay owned by Tencent. According to an article by raconteur.net, each of these platforms handle more payments in a single month than Paypal in a year, according to Analysys. By the end of 2018, Alipay had around 700 million customers, while WeChat has over one billion users.
The payment apps, and QR codes in retailers and other offline businesses on which they depend, have become so ubiquitous in China that young consumers rarely carry a wallet or cash.
According to some projections, by 2020, $45 trillion will be transacted in China through mobile payments, and the country will become mostly cashless.
Alipay’s Investment Platform
Alipay’s Yu’e Bao, is a money market fund designed to catch users’ savings and spare change and transfer it to an investment fund that outperforms deposit accounts. By June 2018 Ju’e Bao had about $210 billion in assets making it the world’s biggest money market fund, even it is four years old.
Libra and the Western world: Will they learn this Lesson?
What are the takeaways of the China lesson in regards to Libra and digital assets?
- Governments should realise by now that creating new bills to outlaw digital assets and digital payment platforms will only help spread the Chinese solution making western countries lag behind.
- Instead, the race to instant payment solutions by fintech companies is the real solution, as the banking institutions are more interested in keeping the monetary transactional friction as high as possible because it’s their profit.
- Libra has shown the need to create external competition to the traditional banking and payment solutions. Instead of killing the messenger, allow open competition to decide which are the best solutions.
- Libra, should rethink its strategy regarding the Libra Reserve and share the returns obtained by this fund also between its customers. Libra will not be the only solution on the planet, and they will face competition, as this is a market like no other.