Facebook’s digital currency Libra, which some regard as a threat to the sovereignty of nations, could be blocked in the EU unless it meets new and stricter standards. But most importantly, the initiative may be a wake-up call for Europeans to rethink their money and payment systems for the digital era.
Consensus has become a precious commodity in today’s world, fractured by trade disputes, tax disagreements and geopolitical tensions. But Facebook’s announcement to launch a ‘stablecoin’ powered by blockchain technology has been received with shared concern and skepticism in every corner. The project has been postponed sine die.
Compared with other cryptocurrencies, Libra would be more stable as it will be backed by a basket of sovereign currencies. But while the beauty of blockchain-based currencies is their decentralized nature, the project will be managed by the Libra association, with Facebook at the helm.
Libra’s potential benefits, including a cheaper payment system, were muddied immediately by the “serious risk” of letting the social media becoming the ruler of a global currency for almost 2.4 billion users, the G7 warned.
In Europe, France has led the crusade against the project, as it represented a threat to national sovereignty and its monetary powers.
While the French government proposed an outright prohibition almost from the start, the European Commission preferred to assess the potential risks, and whether it could be regulated under existing EU laws, or new rules are needed.
The project was also subject to hard scrutiny across the Atlantic. Facebook CEO Mark Zuckerberg, faced an intense grilling by US House of Representatives on 23 October.
At the core of lawmakers and regulators’ concerns in Washington and elsewhere are Facebook’s trust issues.
Why should the company be trusted in such a critical area for the functioning of the economy, after the firm lied to regulators and the public many times in the past?
Europe wants Libra to meet the strictest standards and rules. But member states also want to act “swiftly” on this issue, according to the draft conclusions on ‘stablecoins’ that EU finance ministers will discuss next Friday, as seen by EURACTIV.com
The issue was already discussed during the informal Ecofin in Helsinki last September.
Europeans don’t want to fall behind on such an important issue, given the slow progress made to regulate cryptoassets in the past.
The draft conclusions consider “all options” to tackle cryptoassets and stablecoins like Libra. This would include the possibility to “impede” the development of projects that “would create unmanageable risks”.
As the political discussion speeds up, the Commission continues to gather information to better understand the nature of the project. The EU executive has already sent two questionnaires to Facebook seeking clarifications, including antitrust concerns.
The solution would require amending existing laws, for example the Markets in Financial Instruments Directive (MiFID II) and the Anti-Money Laundering directives, but also putting forward new ones.
But the ECB and the Commission have stressed that the irruption of Libra could represent an incentive to rethink how we pay and exchange value in our monetary system.
“Libra has undoubtedly been a wake-up call for central banks to strengthen their efforts to improve existing payment systems,” said ECB Executive Board member, Benoît Coeuré.
The European Central Bank launched last November TIPS (TARGET Instant Payment Settlement service), to improve the payment system with an instant and more economical solution.
Coeure said that “the next natural step would be for global central banks to join forces and jointly investigate the feasibility of central bank digital currencies.”
The ECB and the Bank of Japan are working on setting up technical standards for all central banks for digital currencies.
China proved again its eagerness in digital matters by speeding up its central bank’s preparatory work for launching its own cryptocurrency.
Libra must be reined in not only by stricter rules to tackle the risks, but also by offering attractive alternatives to replicate the benefits.
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[Edited by Samuel Stolton]