Facebook’s Libra Currency Project Receives Stern Warning from European Central Bank
ECB’s Benoit Coeure warned Facebook must not be allowed to create a rival of the current monetary system.
Facebook’s Libra, a still hypothetical digital asset, may set a dangerous precedent and cannot be allowed to exist in a regulatory vacuum, commented Benoit Coeure, director at the European Central Bank Executive Board.
“It’s out of the question to allow them to develop in a regulatory void for their financial service activities, it’s just too dangerous,” said Coeure for Bloomberg.
The ECB, through various directors, has expressed worries that cryptocurrencies and the creation of an alternative financial system may end up sabotaging the central bank’s monetary policy. Facebook could potentially reach billions of users worldwide, bypassing banks to create a payment system. While each Libra would be backed by fiat, it would also in effect bypass capital controls and may significantly alter the flows of funds internationally.
Libra has invited criticism from multiple international regulators, for potentially allowing money laundering, and possibly creating an informal economy. The Libra Foundation has defended itself, stating that it proposed the idea for a digital asset early, so it could allow time for the necessary regulatory dialogue.
The ECB is no stranger to digital assets. As far back as 2016, the bank tested the Bitcoin (BTC) blockchain but concluded it is too slow to carry transactions on an international scale, to be useful to commercial banks.
Later, the ECB discouraged Estonia from launching Estcoin, stating that the country was a part of the Eurozone and could not set monetary policy independently.
The South Korean Financial Services Commission (FSC) was also worried about the impact of Libra. In a document recently released, the FSC explained that Libra could have a widespread impact on commercial banks. It is possible that Libra’s partners and sellers end up controlling a significant part of users’ deposits, thus depriving banks of their liquidity resources.
The other concern is that Libra will be controlled by an Association registered in Switzerland, and this kind of entity has much more liberal reporting requirements. The Association members will also control the technological side of Libra as block producers, potentially being able to control user balances.