ECB Board Member Benoit Coeure Warms Up to Libra

Stablecoins: A Wake Up Call for the International Banking Industry

Stablecoins are a “wake up call” to the international banking industry, potentially reaching 1.7 billion unbanked.

Stablecoins are a natural evolutionary move away from legacy systems, and may be a “wake-up call” to banks that lag behind fintech trends, commented Benoit Coeure in his hearing before the Bundestag. Facebook’s Libra may end up reaching previously unbanked populations which have been left disconnected from the finance system.

“The traditional bank-based payments ecosystem is being disrupted from below by tech start-ups and from above by well-established big techs - firms that have a large digital footprint but whose core business models have so far been confined to non-financial activities,” commented Coeure.

The remarks resemble those of David Marcus, head of the Calibra wallet service. He commented on Libra’s potential to build a network that unites multiple regions where fintech and banks build complex and expensive transaction chains.

Despite the growth in fintech, cross-border payments and even retail spending remain difficult and expensive. Fees for international remittances cut a significant part of the income of workers from distant markets that offer worldwide services, the ECB board member commented.

Chief Concerns Regarding New Payment Systems

Coeure pointed to five chief concerns regarding the newly arising payment systems:

• Terrorism Financing: One of the top concerns raised by Coeure.
• Money Laundering: Identified as a significant risk.
• Consumer Data Privacy and Security of Funds: A challenge that fintech companies must address.
• Fair Competition: An essential factor for a balanced financial ecosystem.
• Tax Reporting: Another matter of concern highlighted by the board member.

Facebook’s Libra is seen as potentially outcompeting large payment systems in an unfair way, due to the vast user base of the social network. Currently, even the best-developed blockchain projects have a limited number of active users, while Facebook can potentially reach billions. Coeure pointed to the potential of fintech payment systems to connect as much as 1.7 billion people.

Stablecoins are also legally ambiguous, due to their international usage. Loss of trust may be problematic for the newly introduced asset.

“If 'stablecoins' become widely used, they could also give rise to issues related to monetary policy transmission and financial stability. Where a 'stablecoin' acts as a substitute for fiat currency, there may be the risk of the monetary sovereignty of countries being infringed,” Coeure added, reiterating previous concerns about the unwanted dollarization brought about by digital assets.

Libra is expected to launch in early 2020, though the project is still facing questioning from regulators to explain its potential global impact.