By Lee Min-hyung
With Facebook touting its Libra cryptocurrency project, central banks across the globe are split over whether to issue public digital currencies amid concerns that such a stablecoin issued by a private firm can undermine their monetary sovereignty.
Central banking authorities, including the Bank of Korea (BOK), are on the growing alert over the Libra, which the IT giant plans to launch next year, as more than 1.6 billion daily active users of Facebook are potential customers for the digital currency.
The BOK is taking a “wait-and-see” approach over the issue, and said the central bank does not have immediate plans to issue a government-controlled digital currency, or central bank digital currency (CBDC), as of now.
“Financial regulators across the globe are watching closely and carefully how to impose regulations against stablecoins like Libra,” an official from the BOK said.
“As Libra has yet to make its market debut, we need to keep close communication with our counterparts from other countries on how to handle the issue,” said the official who is in charge of digital payment research at the central bank.”But we are not in a stance that the central bank should hurriedly issue a similar public digital currency like some countries.”
According to reports, Beijing’s People’s Bank of China and European Central Bank are considering launching such a digital currency in response to Facebook’s planned launch of the private digital currency.
“Our view is that most Korean people do not feel difficulty in making transactions with current payment methods,” the official said.”Under the circumstance, we do not have to be in a hurry to catch up with the latest trend whose security and stability have not been confirmed.”
Experts in the financial industry said it is too early for central banks across the world to make a specific decision over the issue.
“While worries about stablecoins are understandable, hurriedly developing a CBDC is not the right answer,” Teunis Brosens, lead economist for digital finance and regulation at ING, said in an email interview.
“Instead, to address those worries, regulators and supervisors, including central banks, should tell stablecoin developers what are the conditions and limitations that need to be respected, for a stablecoin to be allowed on the market.”
Antonio Fatas, economics professor at INSEAD, also stressed the need for the global financial authorities to discuss the issue in more detail and set up the “right framework” for stablecoins, amid lingering concerns that such digitized currencies can be used for money laundering or financing terrorism.
“There is no urgency.As long as regulation is clear, there should be no concerns about negative effects on the financial system,” he said.
“Proper regulation should take care of this.With the proper framework, innovation should not be harmed.”
He also pointed out stablecoins should be approached in two different ways, depending on whether they are denominated in the local unit of account or global ones.
“Launching a stablecoin that is pegged to the Korean won simply requires that there is clear regulation about the assets that back the issuance of such a stablecoin,” he said.”As long as that regulation is clear and enforced, this is no different from any other local financial institution.”
But he said this is not the case for global stablecoins, as they can bring potentially negative impacts on the authority and policy-making processes of central banks.
“Global stablecoins are different as they provide their own unit of account and they compete with the local currency,” he said.
“If Libra was to be successful, it would mean there are more than one currency running in parallel.This will make monetary policy less predictable and less powerful.”
For this reason, careful consideration should come before embracing the emerging digital currency, according to the professor.
“For global stablecoins, there is the need for more thinking about the right framework because we do not have current financial instruments that look like global stablecoins.”
[email protected] More articles by this reporter.
