The Libra project, Facebook's digital currency, was a major topic of discussion during the G7 Finance Ministers Meeting in Chantilly, France on July 17th and 18th. Ministers discussed the impact of cryptocurrency on the stability of the global financial system.
Libra is unlike other cryptocurrencies. "The systemic dimension of the project exceeds usual concerns related to consumer protection and the fight against money laundering”, explained the Banque de France, which participated in the G7 Finance Ministers Meeting. "Regulators must not fall behind on the cryptocurrency project; we need to have a common understanding," added the Banque de France.
2 billion potential users
The cryptocurrency that Facebook plans to launch during the first half of 2020, is supposed to allow for the exchange of money between Facebook members and the purchase of goods and services. It will be based on a private blockchain, shared by Facebook partner companies gathered under a Geneva-based foundation.
Government concern stems from the potential scale of the project. Facebook is already subject to calls for dismantling due its large size, as well as its possible monopoly position. The addition of a cryptocurrency to this empire is the worst fear for governments.
Facebook and its affiliates (WhatsApp, Instagram, etc.) represent some 2 billion users in dozens of countries. This is what gives unmatched power to this privately held exchange instrument…at the risk of encroaching on state currencies.
"No company should be equipped with a sovereign currency." Money is the attribute of states and this must remain the case," warned the French Finance Ministry before the G7 conference. The regulation of Libra by central banks will therefore be seriously studied by finance ministers. Indeed, it is the central banks and public bodies that regulate currency, preserve the financial stability of states, prevent money laundering and the financing of terrorism. "Facebook will have to give guarantees on that”, added the Finance Ministry.
Stabilize prices with a basket of real-world currencies
Facebook's Libra currency is different from other cryptocurrencies such as Bitcoin, which is based on a public blockchain, in its intention to become a "stable coin". To avoid volatility in Bitcoin prices, Libra should be based on a basket of real-world currencies, such as the euro or the dollar. Once again, regulators are worried. What would be the risk to these currencies? How will this basket be composed?
These issues are also on the agenda for American authorities. Donald Trump has already written a series of tweets on the subject, warning Facebook that it should seek a banking license to carry out his project. Libra officials, who were questioned by the US Senate on July 16th, assured that they would comply with regulation. "I want to be clear," said David Marcus in his speech before the Senate, "Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals”.
But will these Facebook assurances be sufficient? According to a quote in the Financial Times by Steven Mnuchin, United States Secretary of the Treasury, regulatory authorities have already had multiple meetings with representatives of the Facebook cryptocurrency. Apparently, these meetings have not reassured authorities, and they are still demanding more details on the functioning of Libra.
Arnaud Dumas @ADumas5