Photo: IC

Libra, Facebook's planned cryptocurrency, should be classified as a foreign currency and integrated into the general framework of China's foreign exchange management, said an official of the nation's foreign exchange regulator on Saturday. 

Industry insiders said the issue and use of Libra in China are still under discussion and it's too early to make a conclusion.

Sun Tianqi, chief accountant of the State Administration of Foreign Exchange (SAFE), has analyzed Libra's impact on foreign exchange management and cross-border fund flows. Sun put forward countermeasures on Saturday during a financial summit, the thepaper.cn reported.

"Libra should be regarded as foreign currency and integrated into the framework of China's foreign exchange management as the cryptocurrency can move freely across borders," said Sun. "Otherwise, the use of Libra should be prohibited."

"It is clear that Libra should be under supervision if it enters China. But first we should discuss whether Libra can be considered a currency before regarding it as foreign currency," Lu Zhengwei, chief economist of Industrial Bank Corp, told the Global Times on Sunday. "Foreign currencies have high convertibility around the world. It's unknown whether Libra can be recognized by central banks to guarantee its convertibility."  

Facebook has revealed that 50 percent of its reserves are in US dollars, but the specific composition of the asset basket that underlies Libra remains unknown, experts said. They noted that Facebook has said that the basket contains multiple convertible currencies to guard against losses.

"There are many problems to solve before Libra could enter China's financial market," said Lu. 

Sun, the SAFE official, also raised questions about Libra in terms of transactions and settlements.

Sun said that in China, one of the basic requirements of foreign exchange management is to verify the authenticity of foreign exchange transactions. "Libra is a consumer-to-consumer currency, in the sense of its technology. The problem is, who will authenticate cross-border transactions? How to distinguish domestic or cross-border transactions in a digital environment? How to determine the transaction parties?" Sun said. 

"Settlement in China must be denominated in yuan," said Sun, and there are opinions that Libra may strengthen the dominance of the US dollar and extend the US' long-arm jurisdiction. "Half of Libra's reserves are in dollars. According to the US' principle of 'minimum contacts', all entities and individuals that deal with Libra must be subject to its long-arm jurisdiction," Sun warned.

Cross-border financial services must be licensed in China, including Libra, said Sun. "In the existing non-digital and digital monetary environment, cross-border financial services have presented increasing challenges to regulation and supervision."

Libra's transaction speed is too slow to meet e-commerce demand in China, said Mu Changchun, deputy director of the Payment System Department of the People's Bank of China, the central bank, according to yicai.com.

"Online transactions peaked at 92,771 per second on November 11, 2018, the online retail festival, compared with seven transactions per second for bitcoin and 10 to 20 transactions for Ethereum," Mu said on Saturday during a financial conference.

"According to Facebook's white paper, Libra has 1,000 strokes per second. When issuing digital currency in such a big country as China, adopting pure blockchain architecture cannot meet the demand of high concurrence," Meng said.