Central Bank officials including Federal Reserve Chairman Jay Powell have questioned the adequacy of the existing regulatory structures that would govern Facebook’s proposal to launch its own cryptocurrency, Libra, and have raised concerns over the systemic, privacy, money laundering, and other risks that venture could pose to the global financial system. Those warnings have been followed by two days of Congressional questioning of Facebook’s representative, most of it hostile.
*** While Facebook is carefully hewing to its message that the firm’s planned one-year lead time for launching Libra is intended precisely to allow sufficient time to address lawmaker and regulator concerns, the mounting global pushback from the policy world against Libra should not be underestimated. And that includes a tacit agreement, it appears, among the G7 finance ministers and central bank governors at the just concluded meeting in Chantilly, France, that this perceived threat to the global monetary system should not, in effect, ever materialize. ***
An Overwhelming Resistance
It may come as no surprise after Fed Chairman Powell’s warnings — and even some broadside tweets against the Libra project from President Donald Trump — that US Treasury Secretary Steven Mnuchin is said to have come out forcefully and critically against Libra at the G7 meeting that is just wrapping up.
But on this, he and the US delegation were far from alone.
German Finance Minister Olaf Scholz is reported to have also expressed concerns over the threat Libra would pose to central banks and governments, suggesting the G7 would need to agree on their response and act quickly to stave that off. That was taken to mean action before the end of this year.
And that feeling was shared, among others, by France’s Finance Minister Bruno LeMaire, and by Bank of Japan Governor Haruhiko Kuroda.
While a bit loathe to be seen as intervening directly in a private sector venture, the ministers and central bankers believe a new means of payment launched by a private company, that could be used by two billion Facebook users, is a potentially enormous threat to financial stability. Period.
And the thinking among policymakers, despite Facebook’s assurances, appears not to be to simply tweak regulations around this new business plan. Rather, the plan appears to be to implement rules now that will cut Facebook’s plans to size, and make the whole venture unattractive for the company.
Or, in other words, to paraphrase France’s LeMaire, financial officials are in agreement that the system cannot accept having any exchange currencies with the same kind of power, and the same kind of role, as sovereign currencies.