EU member states to look into Facebook’s controversial Libra

A Facebook logo on a stand during the Vivatech startups and innovation fair, in Paris, France, 16 May 2019 (reissued 18 June 2019). US social media giant Facebook announced on 18 June 2019 its plans for their cryptocurrency named Libra. It is scheduled to rolled out in 2020. [EPA-EFE/Julien de Rosa]

The Economic and Financial Committee (EFC), which brings together the EU’s member states, has requested an analysis note from the European Commission to further look into the risks posed by Facebook’s controversial digital currency Libra and the ways to regulate it.

The document will be sent to the capitals this week, ahead of the next EFC meeting on Friday (6 September), when the issue is going to be discussed by the national governments’ envoys.

Regulators and decision-makers are trying to see whether Libra could be categorised as a virtual currency, a financial instrument or e-money.

As a result, the digital asset would be regulated under the Markets in Financial Instruments Directive (MiFID II), the Anti-Money Laundering directives, or could fall under a dedicated regime adjusted to its own features.

For its backers, including various multinationals such as MasterCard or Uber, Libra addresses the volatility of digital currencies by anchoring the “coin” to a basket of sovereign currencies.

But regulators are concerned about its potential to become a global source of financial instability, given that Facebook could directly offer this new uncontrolled payment instrument to its almost 2.4 billion users.

G7 says Facebook’s Libra poses 'serious risks'

The G7 listed on Thursday (18 July) the requirements Facebook’s new ‘coin’ Libra should meet, as regulators are increasingly wary of the “serious risks” posed by this digital currency.

The EFC debate intends to follow up on the G7 finance ministers and central bankers’ discussion held in Chantilly (France) in July, as an effort to coordinate the European response.

Facebook intended to launch its project during the first half of 2020, but given the global backlash said it would postpone its release until it has addressed all the regulatory concerns.

The project suffered a serious setback when senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board described Libra as a “serious risk” for the international financial system.

The G7 working group on this issue concluded that Facebook still faces “significant work” to meet all the requirements before approval, including “the highest regulatory standards” and “sound legal basis”.

European central bankers claim oversight over Facebook’s cryptocurrency

Three European central bankers are claiming oversight over Facebook’s planned virtual currency to ensure it will not jeopardise the financial system or be used to launder money.

The EFC discussion will come after a warning issued by ECB’s executive member Yves Mersch this week.

He said on Monday (2 September) that Libra “could reduce the ECB’s control over the euro, impair the monetary policy transmission mechanism by affecting the liquidity position of euro area banks, and undermine the single currency’s international role, for instance by reducing demand for it”.

“I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call,” Mersch added.

The European effort will fit into the global determination to regulate Facebook’s ‘coin’. Further work is expected by the G20 and the Financial Stability Board, given the importance of international coordination to address the cross-border nature of the project.

Europe moves towards a common approach to regulate cryptoassets

European decision-makers and regulators are progressing towards an EU approach for dealing with cryptoassets, digital assets that use cryptography such as Bitcoin and represent a booming market still viewed with concern by financial supervisors.

[Edited by Zoran Radosavljevic]

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