China’s central bank weighs in on Facebook’s Libra

On the 9th July, the Deputy Director of the People’s Bank of China, Mu Changchun, released statements about Facebook’s Libra blockchain based currency and wrote a piece in Caixin. He echoes many other members of financial bodies who have warned that it could disrupt current practices.

Libra and monetary policy

Mu made the point that once Libra starts being used for credit sales and consumer loans, as Facebook has already alluded to, then it generates a money multiplier. Hence the reserves that back the original Libra created, won’t be enough to keep Libra stable. Mu believes that central banks should be involved in controlling the multiplier and reserve requirements. Additionally, for countries which have an unstable currency, there will be a strong incentive for citizens to switch to Libra, which could exacerbate domestic currency depreciation.

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