“Beguiling but treacherous” promises about Facebook’s Libra digital currency could undermine the European Central Bank’s ability to set monetary policy, according to a top ECB official.
T he technology giant is planning to launch its Libra cryptocurrency next year, which will be traded on Facebook’s apps and used for making money transfers or paying for services.
In a speech at the ECB’s legal conference in Frankfurt, Yves Mersch, an ECB board member, warned that private currencies have little chance of establishing themselves as viable alternatives to centrally-issued legal tender.
“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 favor of the beguiling but treacherous promises of Facebook’s siren call,” he said.
“Depending on Libra’s level of acceptance and on the referencing of the euro in its reserve basket, it 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,” he added.
Mersch said the structure of the Libra Association, the Swiss-based group of companies that will run the digital coin , was “not only complex, it is actually cartel-like” and added there were questions over who would support the coin in a liquidity crisis or back currency holders’ deposits.Technology intelligence – newsletter promo – EOA
T he digital coin will be launched in 2020 as part of the most ambitious and well-resourced project to develop a mainstream cryptocurrency.
Although Facebook has led the development of the coin, its governing organisation will include payments companies such as Mastercard and Visa, as well as technology giants including Uber, Spotify and Vodafone.
It will be backed by a stock of reserve currency in pounds, dollars and other stable currencies like Japanese yen, in an effort to avoid the volatile price swings common on digital currencies like Bitcoin.
But its launch has led to warnings from bankers that the move could destabilise traditional central banks and give Facebook, which is leading the development of a wallet app that will let people trade the coin, significant control in the new cryptocurrency market.
Mersch added that central banks still need to look at technical innovations like digital coins.“The stance of central banks toward modern forms of money is bound to evolve with time,” he said.But he warned that Libra could mean gifting this innovation to “unaccountable private entities with a questionable track record in matters of trust”.
B ank of England Governor Mark Carney, however, has proved more receptive to plans for a Libra-like coin .He said in June that Facebook’s coin should be looked at with “an open mind”.
In August he proposed that a global digital currency, backed by nation states, could provide a stable alternative to the US dollar.Facebook Libra | Q&A
F acebook’s plans for Libra have raised concerns from bankers and politicians about how the mass adoption of digital currencies might make it harder to monitor and block terrorist financing or money laundering.
Calibra, the Facebook-backed company that is developing a virtual wallet for the coin, has said it will comply with all US regulations to block illegal payments.Calibra boss David Marcus said in July that Libra was “committed to supporting… the fight against money laundering, terrorism financing and more”.
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