What happened recently with the Libra Association?
Made up of more than two dozen companies and based in Geneva, a few of the founding members, including PayPal, Mastercard, Visa, Stripe, Booking Holdings, and eBay, decided to leave the Libra project. A five-member board governance board was formed after the Libra Association reaffirmed its commitment by holding its inaugural meeting in Geneva, Switzerland, on Oct. 14.
However, the Libra Association quickly defended, saying, “we’re better off knowing about this lack of commitment now, rather than later.”
Libra announced that the launch was planned for June 2020; however, the global watchdogs stated, “we are surprised and concerned that this further detail is not yet available.” On Sept. 16, Libra representatives met with the Committee on Payments and Market Infrastructure (CPMI), a part of the Bank for International Settlements (BIS) – a group for 60 central banks and monetary authorities across the globe to discuss the regulatory hurdles around stablecoins developed by large corporations.
Despite the global uncertainty of the stablecoin, the Libra Association will continue with its plan to launch with the 100 members initially envisaged when it was announced in June. The association also believes that new financial and banking partners will be joining.
The European Union
Benoit Coeure, an executive at the European Central Bank, warned that regulators are cautious of cryptocurrencies by large corporations similar to Libra. He mentioned, “as a new technology, stablecoins are largely untested, especially on the scale required to run a global payment system. They give rise to a number of serious risks related to public policy priorities.” He believes that Libra needs to be well understood and thoroughly tested in a real-world environment to see whether it is scalable to run a global system for its official launch.
The executive branch of the European Union sent a questionnaire to Facebook and the Libra Association regarding clarification about the stablecoin. These questions come after the European Union antitrust regulators’ preliminary investigation into Facebook’s plans. The EU regulators were concerned about the use of information and data, along with the integration of Libra wallets with WhatsApp and messenger services.
However, Dante Disparte, Head of Policy and Communications for the Libra Association, stated, “the Libra Association welcomes this public policy dialogue and multi-stakeholder process that will help unleash the economic and social potential of digital currencies.”
Valdis Dombrovskis, the European Union’s finance commissioner, pledged to propose new rules to regulate cryptocurrencies similar to Libra. Dombrovskis’ served as Latvia’s prime minister and finance minister and was a member of the European Parliament from 2004 to 2009. If reappointed as the Executive Vice President of the European Commission, Dombrovskis would be handling “An Economy that Works for People” and will be working to “deepen Europe’s economic and monetary union.” Dombrovskis advocated for the EU’s need to address “unfair competition, cybersecurity, and threats to financial stability.”
The European Commission
Margrethe Vestager, the Executive Vice President-Designate of the European Commission, questioned the motives behind Facebook’s Libra stablecoin. Vestager addressed competition as a possible impact from Libra’s launch due to Facebook’s multimillion user base and a distortion of competition in the payment services market.
"It's a pretty new thing that we are starting to question something that does not exist yet. But it is so far in the future that we cannot tell if this is going to be a problem. And the problem may be that you get a completely closed ecosystem that has nothing to do with the rest of the economy."
Vestager further questioned, “What does it mean that you have your own currency that works within this space — and which can only be used within this space? So, what about the values that get caught there? Those who sell with the Libra as a means of payment then get a special advantage over those who come and want to pay in all sorts of other ways?"
France said in September that it would be blocking the development of Facebook’s Libra in Europe. Bruno Le Maire, French Finance Minister, said that plans for Libra could not move ahead unless concerns over consumer risk and governments’ monetary sovereignty were addressed. Le Maire commented on virtual currencies:
“I want to be absolutely clear: In these conditions, we cannot authorize the development of Libra on the European soil." He added, “the monetary sovereignty of countries is at stake from a possible privatization of money... by a sole actor with more than 2 billion users on the planet.”
Le Maire also mentioned that there is a risk of countries having to bail out the currency if it goes under and facing other risks such as money laundering on a more challenging level, and terrorism financing. He suggested that Facebook could look at creating another separate “public digital currency.” Another concern that Le Maire expressed was that Libra might “substitute itself as a national currency” and potentially cause financial disruption. He said, “I don’t see why we should dedicate so much effort to combating money laundering and terrorist financing for so many years to see a digital currency like Libra completely escape those regulatory efforts.”
However, Disparte said that Le Maire’s comments emphasized the importance of the project’s backers working together with global regulators. He clarified, “We recognize that blockchain is an emerging technology and that policymakers must carefully consider how its applications fit into their financial system policies.”
Along with the French, Germany’s finance minister has also been against private currency projects like Libra, although support the digitization of the euro. Olaf Scholz, German Federal Minister of Finance, stated that he would be keen on developing an “E-euro,” claiming:
“A payment system like that would be good for Europe as a financial center and its integration into the world financial system.”
However, he also commented by saying he is “very, very skeptical” of Facebook’s stablecoin, and added, “a core element of national sovereignty is currency issuance; we would not leave that to private businesses.”
Ricardo Mourinho Felix, Portugal’s Secretary of State for Finance expressed concerns about Libra in early October, announcing that it should not circulate in the market until the risks it could pose for the current financial system are mitigated.
Felix addressed Facebook’s stablecoin at a conference, “it is clear from the outset that is a high-risk phenomenon with systemic implications. It is essential that no ‘stable currency’ project like Libra – is launched until all concerns have been duly addressed.” He further highlighted that Portugal also shares the same concerns as stated by other European countries regarding Libra.
Felix highlighted the “risk that Libra could limit the reach of traditional monetary policy tools,” and could have a significant effect on the policies which today promote the stability of the financial system.”
Mark Branson, the Head of the Swiss Financial Market Supervisory Authority (FINMA) has concerns with the crypto projects that develop without being thoroughly questioned by the officials rather than about Facebook’s Libra.
Branson stated at a Bloomberg event in Zurich, “I am much more nervous about projects which develop in a dark corner in the financial system somewhere, spread themselves out through cyberspace and one day are too big to be stopped.”
He mentioned that Switzerland would not be putting up “extra hurdles” in front of the project. However, Libra will be under strict rules that typically apply to banks and on top of unbending anti-money laundering laws. “We are not here to make such projects impossible. We will respond to them with an open mind, with an attitude that same risks require same rules,” said Branson.
Mark Carney, Governor of the Bank of England, has been defending Facebook’s decision to create a new currency. According to news outlet TheStar, Carney highlighted the limitations of the current traditional financial system. Carney believes that Facebook and other similar firms should be involved in projects like Libra.
With the high costs of transactions, small businesses are charged as much as 200 basis points per transaction, Carney further explained, “that’s not good enough in this day and age. Those payments should be instantaneous; it should be the same as us exchanging a banknote online. It should be virtually costless, and it should be 100 percent resilient.”
The United Kingdom’s central bank also presented its latest Financial Policy Summary and Record at a Financial Policy Committee (FPC) meeting that was held on Oct. 9. The document presented the resilience of the UK Financial system, discussed the innovative developments in the payments sector while highlight Libra has a great chance to become “a systemically important payment system.”
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