By Francesco Canepa and Leigh Thomas
CHANTILLY, France (Reuters) – Global regulators will not let Facebook launch its Libra currency until all their concerns, ranging from money laundering to financial stability, have been addressed and “a prolonged discussion” may be needed first, the man in charge of their response told Reuters.
Facebook (O:) announced Libra — a new digital coin backed by four official currencies and available to billions of social network users around the world — a month ago, adding that it was hoping to launch as soon as next year.
That goal may prove optimistic.
Benoit Coeure, the European Central Bank board member who chairs an international working group on Libra, said Facebook’s global reach meant the cryptocurrency had to be safe “from day one” for its users, the financial system and authorities fighting crime.
“You’ve got to be safe, robust and resilient from day one,” Coeure said in an interview on the sidelines of a Group of Seven meeting in Chantilly, France. “It’s not a learning process: either it works or it doesn’t.”
Regulators fear Libra, which in its original design would let users transfer money using a pseudonym, may be used to launder money or finance terrorism.
They also want to know what safeguards Facebook and the other 27 members of the Libra Association have in place to ensure they could withstand a run on reserves and that users’ privacy and ownership rights are protected.
This may involve a “prolonged discussion” among regulators on how to change existing national and international rules to cover Libra, Coeure said.
“Down the road we might find that there are gaps or inconsistencies that would require a prolonged discussion by regulators on how to do it differently,” he said.
“Authorities are not going to let any such projects happen before we have answers to our questions and before we have the right regulatory framework.”
Cryptocurrencies are subject to patchy rules across the world, with the technology remaining mostly unregulated.
While some smaller countries, from Belarus to Malta, have brought in specific laws, major economies have tended to apply existing financial rules.
Coeure said his G7 working group on stablecoins will work on the matter until the International Monetary Fund’s annual meeting in October, when it will hand it over to the Financial Stability Board of global financial regulators.
Facebook said earlier this week it would not proceed with the launch of Libra until regulatory concerns are addressed.
ROLE OF THE PRIVATE SECTOR
Libra has also raised questions about the role of private companies in the currency world, traditionally the province of the public sector.
Advocates say it gives ordinary people, particularly in poorer countries with a volatile currency, access to a safe store of value because Libra is backed by a basket comprising the U.S. dollar, the British pound, the euro and the yen.
But Coeure was skeptical about weakening authorities’ control over their own monetary system and handing it over to a private company.
“Market discipline is useful but I wouldn’t see it as progress to shift monetary sovereignty from governments to private multinationals,” he said.
He added there was concern at the G7 about granting that sovereignty to “large companies having enormous market power which occasionally have been indicted of misusing their client data.”
A source told Reuters last week the U.S. Federal Trade Commission approved a roughly $5 billion settlement with Facebook over its investigation into the social media company’s handling of user data.
But there were also lessons for regulators to learn.
Coeure said initiatives like Libra showed people did not trust fully in the traditional financial system a decade after the start of the global crisis and were seeking alternatives.
“We as the official community globally have not been fully successful in restoring trust in the financial system which is why you see demand for alternative propositions. That is a message we have to take seriously.”