G7 ministers 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 the new digital currency.
The outstanding work needed for Facebook to meet the regulators’ demands suggests that Libra, unveiled in June, would not start functioning anytime soon.
Libra was part of the discussions held by the finance ministers of the Group of 7 (G7) on Wednesday and Thursday near Paris.
In an interview with EURACTIV.com, French finance minister Bruno Le Maire, whose country is chairing the G7 this year, said that “we will not accept that Libra is transformed into a sovereign currency that can endanger financial stability.”
Libra and similar cryptocurrencies are known as ‘stablecoins’, as they seek to address the volatility of digital currencies by anchoring the “coin” to an asset (for example a sovereign currency) or a basket of assets.
The G7 working group on ‘stablecoins’, which consists of senior officials from the G7 central banks, the International Monetary Fund, the Bank for International Settlements and the Financial Stability Board. presented a bleak assessment.
The chair of the group, European Central Bank Executive Board member, Benoit Coeuré, welcomed that the new payment instrument could allow for cheaper remittances and payments, and greater financial inclusion.
But the risks are important, he warned. In particular, “anti-money laundering and countering the financing of terrorism, as well as consumer and data protection, cyber resilience, fair competition and tax compliance.”
He added that Libra could also affect the ability of central banks to ensure stable currencies by impacting monetary policy transmission, and reduce financial stability and “public trust” in the global payment system.
Against this backdrop, Coeuré listed four conditions that Libra and similar ‘coins’ should meet to be approved.
Firstly, they must fulfil “the highest regulatory standards and be subject to prudent supervision and oversight”. The basic principle is “same business, same risks, same rules” to apply the same criteria that other sovereign currencies and means of payment meet, in order to ensure consistency across the world.
Secondly, Libra and similar initiatives should demonstrate “a sound legal basis”, to provide “adequate protection and guarantees” to all users.
“At a minimum, issuers of stablecoins should clearly explain the nature of the commitment they are making to the holders of their coins and any risks involved in owning this asset.”
Thirdly, it must be supported by an appropriate “governance and risk management framework” to guarantee cyber protection.
Lastly, the assets anchoring the digital ‘coins’ must be “safe, prudent, transparent and consistent with the nature of obligations or expectations of coin holders”, so confidence remains in the system despite potential fluctuations.
Coeuré said that Facebook and other developers still face “significant work” to meet these requirements before their new ‘coins’ are approved.
The G7 experts are particularly concerned about the potential for Libra to “rapidly achieve a global footprint”, given that Facebook could directly offer this new payment instrument to its almost 2.4 billion users.
Other large firms, including Mastercard, PayPal, eBay and Uber are also involved the project.
“It is imperative that authorities be vigilant in assessing risks and implications for the global financial system,” the group said.