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.
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”.
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.
[Edited by Zoran Radosavljevic]
