Central banks grill Facebook over cryptocurrency

Central banks grill Facebook over cryptocurrency

Facebook has faced a grilling from 26 central banks over the scope and design of its proposed cryptocurrency Libra, amid mounting concern over the threat posed to financial stability and monetary sovereignty.

Facebook executives representing Libra were questioned Monday by the Bank for International Settlements' powerful Committee on Payments and Market Infrastructure, a forum comprising central bank chiefs from the world's biggest economies.

Facebook shared the floor with bank-backed stablecoin project Fnality, and JPMorgan's Interbank Information Network, which is creating a JPM Coin for use in interbank transactions.

The meeting was chaired by European Central Bank executive board member Benoit Coeure. The group will produce a final report on its work by mid-October.

"As a new technology, stablecoins are largely untested, especially on the scale required to run a global payment system," says Coeure. "They give rise to a number of serious risks related to public policy priorities. The bar for regulatory approval will be high."

Facebook is being assailed from all sides over its plans, with finance ministers in both France and Germany just last week threatening to ban its use.

In a joint statement, France’s Bruno Le Maire and Germany’s Olaf Scholz warned of the dangers to consumer interests and financial stability, stating: “France and Germany consider that the Libra project, as set out in Facebook’s blueprint, fails to convince that those risks will be properly addressed."

Le Maire has been even more forthright, saying on Thursday: “I want to be absolutely clear: In these conditions, we cannot authorise the development of Libra on European soil.”

In response, Facebook's David Marcus, who is chaperoning the project at the social media giant, took to Twitter with a lengthy thread aimed at debunking the notion that Libra presented a threat national sovereignty:

Comments: (4)

Christopher Williams
Christopher Williams - RTpay - Winchester Uk 16 September, 2019, 13:00Be the first to give this comment the thumbs up 0 likes

It is extraordinary how aggressive many authorities are being on Libra when it has the capability to do so much good  - 'throwing the baby out with the bathwater' has seldom been so clear!

Lowering the excessive costs of international remittances is one of the key targets of last December's 152 member countries of the global compact for migration - and yet those voices are not being heard when a solution is at hand. 

Libra can act as a payment flow enabler, for the $1 trillion remittances market, bring the cost down from 7% average to less than 1%, so $60 billion added value for many of those most in need.

It is far from complicated to limit Libra's role to this functin, if governments want to block any holding of Libra balances - which is most likely in the first stage. 

It is quite probable that some eventual usage of Libra for small amounts of financial services become a factor (such as for insurance-based products), but still limiting any large-scale holding of Libra as a rival to the local fiat currencies.

Let us hope that reason - and a better understanding of the value (particularly for 1.7 billion unbanked people) - come into the discussion before it's too late.  

A Finextra member
A Finextra member 16 September, 2019, 21:26Be the first to give this comment the thumbs up 0 likes

Good numbers, I have no doubt they have been meticulously researched, modelled, forecast - and the financial community has consensus about their accuracy ;)

Nobody argues against the good things expected to come with Libra (and other proposed currencies). Regulators and Central Banks, on the other hand, have a number of concerns and I'm equally convinced they are not all imaginary or based on untrue assumptions; most risks and downsides are probably real.

All it takes is to address each of those concerns with rational logic and actionable mitigation plans - rather than dismiss them as 'baby thrown out with the water' and (you didn't say it, but many think of it as)  'old school ignorance' or 'control-freakish dictatorship'.

Cool-headed rational persuasion with facts and science (financial, socio-economic and political science may be needed along with tech and maths) - have more chance to bring the matter forward and the bright future closer.

Russell Bell
Russell Bell - Fastbase Ltd - Wellington 17 September, 2019, 06:13Be the first to give this comment the thumbs up 0 likes

Very many people are looking around keenly for alternative places to hold their money.  In recent months I've been buttonholed on such subjects as negative interest rates and depositor vulnerability to bank-bailouts, by people who I never would have imagined had any interest in such matters.

A Libra account that allowed holding of a balance could be highly attractive, assuming it was secure (in both a technical and backing-of-funds sense) and included low-friction, low-fee deposits & withdrawals to other currencies.

Endorsing it requires a couple more assumptions; that use is voluntary (i.e. alternatives remain available) and security of funds proves genuine, not an illusion; assuming all that, it's hard to argue any genuine danger to consumer interests.

It's somewhat disingenuous to lump together consumer interests & financial stability.  The established financial sector certainly perceives a danger here, a competitive risk, because the established offerings don't look particularly attractive when compared with something such as Libra.

A Finextra member
A Finextra member 17 September, 2019, 16:42Be the first to give this comment the thumbs up 0 likes

According the Libra white paper all Libras are backed with fiat currencies that are placed in deposit at the moment someone buys Libra coins. The Libra foundation needs to take care that these deposits are held in custody in such a way that the market risk is as minimal as possible. This means spread across accounts held with different banks or other save-haven assets. The foundation needs to take care that there is enough liquidity available when Libra holders want to exchange them into fiat currency again. As financial oversight authority you rightfully may be concerned about this, but I do not see how this is much difference than people holding money on a PayPal account. If the Libra foundation would apply for a banking license in every country of which the currency participates in the Libra, would that change their mind? In the EU a Euro Libra would fall officially under eMoney institution legislation which makes it possible that non-banks are issuing eMoney that is backed up with deposits.