Facebook's new digital currency, Libra, could "substantially improve financial inclusion and dramatically lower the costs of domestic and cross border payments," Bank of England governor Mark Carney has said in a speech during which he also revealed the central bank could open up access to its balance sheet to new payment providers.
Carney used his Mansion House speech to flesh out earlier initial comments on the Libra project, giving a considerably warmer response to Facebook's plans than most regulators and politicians have proffered.
"The Bank of England approaches Libra with an open mind but not an open door," Carney told his audience, adding that "the terms of engagement" must be adopted in advance of launch because the project would by systemically important and therefore need to meet the "highest standards of prudential regulation and consumer protection".
Notably failing to name Facebook, the governor talked of the "cooperative of technology companies" involved in Libra and stressed that it must be a "pro-competitive, open platform that new users can join on equal terms".
Facebook can expect intense srutiny from global regulatory bodies. “It has to be safe, or it’s not going to happen,” Carney told the BBC in an interview broadcast on Friday. “We, the Fed, all the major global central banks and supervisors, would have direct regulatory (oversight).”
Regulatory authorites are concerned that Libra might grow to replace national sovereign currencies, displacing depoits at banks and creating instability in the financial system. France is reportedly forming a task force within the Group of Seven (G7) nations to examine the issues under the leadership of European Central Bank board member Benoit Coeure.
More generally, "whatever the fate of Libra, its creation underscores the imperative of transforming payments," according to Carney, which is why the BofE is looking to open up access to a wider range of payment options.
To this end, consultation is set to begin on opening access to the central bank's balance sheet to new payment providers, such as Facebook. Carney says that it "makes sense" to consider whether new players should be able to hold funds overnight on the BofE's balance sheet.
This could increase competition, support financial stability by reducing reliance on the big banks, and reduce costs. It could also promote innovation, says Carney, citing the various consortia of broker dealers that are already working to develop settlement systems using distributed ledger technology that "could overhaul how markets operate".
Innovation is needed because the "UK system has a way to go" before it meets consumer and business expectations in the digital age, says Carney. Few people use the Faster Payment System-based mobile app PayM and Faster Payments is still not used for in-store and online purchases, putting the UK a long way behind the likes of Sweden and India. Meanwhile, card payments are convenient but expensive.
Carney says the Bank is responding through the rebuild of its RTGS system, giving more payment service providers access to it. The rebuild will also provide API access to users to read and write payments data, while each payment will be tagged with information in a standardised format.
Carney's speech drew on a new BofE review, called Future of Finance, put together by a group chaired by Huw van Steenis.
The wide-ranging review makes a host of recommendations for the Bank, among them:
- Develop the infrastructure to make cross-border payments more efficient and cheaper, including through richer messaging standards
- Create an API to improve information retrieval and sharing from payment systems
- Champion trusted digital identification
- Embrace the cloud
- Support an 'air traffic control' for major projects, bringing all regulators together
- Promote AI and machine learning but establish a working group on their ethical use
- Support better credit files for SMEs
- Boost protection against cyber-risks through better data recovery and cyber-exercises
- Embrace digital regulation