After Libra, Digital Yuan and COVID-19: Central Bank Digital Currencies and the New World of Money and Payment Systems

54 Pages Posted: 16 Jun 2020

See all articles by Douglas W. Arner

Douglas W. Arner

The University of Hong Kong - Faculty of Law

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Dirk A. Zetzsche

Universite du Luxembourg - Faculty of Law, Economics and Finance; Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC)

Anton Didenko

University of New South Wales (UNSW) - Faculty of Law

Date Written: June 2020

Abstract

Technology, money and payment systems have been interlinked from the earliest days of human civilization. But of late technology has reshaped money and payment systems to an extent and speed never before seen. Milestones include the establishment of M-Pesa in Kenya in 2007 (creating mobile money systems), Bitcoin in 2009 (triggering in time the explosive growth in distributed ledger technology and blockchain), the announcement of Libra in 2019 (triggering a fundamental rethinking of the potential impact of technology on global monetary affairs), and the announcement of China’s central bank digital currency – the Digital Currency / Electronic Payment (DCEP) referred herein to as Digital Yuan (marking the first launch by a major economy of a sovereign digital currency).

The COVID-19 pandemic and crisis of 2020 has spurred electronic payments in ways never before seen. In this paper, we ask the question: In the context of the crisis and beyond, what role can technology play in improving the effectiveness of money and payment systems around the world?

This paper analyses the impact of distributed ledger technologies and blockchain on monetary and payment systems. It particularly considers the policy issues and choices associated with cryptocurrencies, stablecoins and sovereign (central bank) digital currencies. We examine how the catalysts reshaping monetary and payment systems around the world – Bitcoin, Libra, China’s DCEP, COVID-19 – challenge regulators and give rise to different levels of disruption. While the thousands of Bitcoin progenies were able to be ignored, safely, by regulators, Facebook’s proposed Libra, a global stablecoin, brought an immediate and potent response from regulators globally. This proposal by the private sector to move into the traditional preserve of sovereigns – the minting of currency – was always likely to provoke a roll-out of sovereign digital currencies by central banks. China has moved first, among major economies, with its Digital Yuan – the initiative that may well trigger a chain reaction of central bank digital currency issuance across the globe.

In contrast, in the COVID-19 crisis, we argue most central banks should focus not on rolling out novel new forms of blockchain-based money but rather on transforming their payment systems: this is where the real benefits will lie both in the crisis and beyond. Looking forward, neither the extreme private nor public model is likely to prevail. Rather, we expect the reshaping of domestic money and payment systems to involve public central banks cooperating with (new and old) private entities which together will provide the potential to build better monetary and payment systems at the domestic and international level. Under this model, for the first time in history, technology will enable the merger of the monetary and payment systems.

Keywords: Libra, blockchain, bitcoin, COVID-19, RTGS, fast payment systems, central bank digital currency

Suggested Citation

Arner, Douglas W. and Buckley, Ross P. and Zetzsche, Dirk Andreas and Didenko, Anton, After Libra, Digital Yuan and COVID-19: Central Bank Digital Currencies and the New World of Money and Payment Systems (June 2020). European Banking Institute Working Paper Series 65/2020. Available at SSRN: https://ssrn.com/abstract=3622311 or http://dx.doi.org/10.2139/ssrn.3622311

Douglas W. Arner

The University of Hong Kong - Faculty of Law ( email )

Pokfulam Road
Hong Kong, Hong Kong
China

HOME PAGE: http://hub.hku.hk/rp/rp01237

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

Dirk Andreas Zetzsche (Contact Author)

Universite du Luxembourg - Faculty of Law, Economics and Finance ( email )

Luxembourg, L-1511
Luxembourg

HOME PAGE: http://wwwen.uni.lu/recherche/fdef/research_unit_in_law/equipe/dirk_andreas_zetzsche

Heinrich Heine University Dusseldorf - Center for Business & Corporate Law (CBC) ( email )

Universitaetsstr. 1
D-40225 Düsseldorf
Germany
+49 211 81 15084 (Phone)
+49 211 81 11427 (Fax)

Anton Didenko

University of New South Wales (UNSW) - Faculty of Law ( email )

Kensington, New South Wales 2052
Australia

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