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Facebook first announced its Libra digital currency in June, which the company claims will allow people to transfer money around the world as easily as sending a photo or text message. (Uh...possible exceptions in China)
Unlike cryptocurrencies such as Bitcoin and Ethereum, which have large price volatility, Libra will be pegged 1:1 to a basket of fiat currencies and short-term government bonds in its reserves, so the price of Libra will remain relatively stable. And Libra will be operated by the Libra Association "independent" of Facebook.
Facebook has also launched a new subsidiary called Calibra, which will create a digital wallet for Libra token users to store and exchange Libra tokens and help the company profit from the virtual currency. David Marcus serves as the Calibra project lead.
But Facebook's seemingly perfect layout has not convinced global regulators. Since Facebook proposed the Libra plan more than two months ago, regulators around the world have received a lot of criticism of the project.
Indeed, global privacy watchdogs, central bankers and finance ministers have expressed concern about Libra and have stepped up pressure on Facebook to launch a digital currency, Libra, which could, at least in theory, revolutionize or even undermine those regulators' vision. Work.
In the eyes of these regulators and central bankers, Libra increases the risks for financial authorities and could seriously disrupt the global financial system, forcing them to take digital currencies more seriously.
Trump tweeted earlier this year that Libra has "no stature or reliability" and that "the only real currency in the United States is the dollar."
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U.S. President Donald Trump tweets his thoughts on cryptocurrencies like Bitcoin and Libra
That appears to be a consistent stance for many regulators and lawmakers who fear Libra will compete with government currencies. This is because Facebook is a very influential platform with over 2.4 billion monthly active users as of July 2019. The company operates the Libra project in partnership with the Switzerland-based Libra Association, which includes giants such as Uber, Visa and Vodafone.
Last week, the finance ministers of France and Germany both railed against Libra, saying Facebook's blueprint for the digital currency "failed" to address key risks surrounding financial security, investor protection and anti-money laundering laws. French Finance Minister Bruno Le Maire even stated that he "cannot authorize Libra to develop on European soil."
A key concern for France and Germany is whether Libra, a global digital currency issued by a private company, will compete effectively with sovereign currencies such as the euro and the dollar. Some experts believe that Libra may also weaken the role of regulators.
Then there's the fact that Facebook, a company that was embroiled in a scandal last year over data privacy issues. Given Facebook's history with user privacy, privacy regulators in the United Kingdom, the United States and the European Union have expressed concern about Facebook's ability to protect the privacy of Libra users.
In the past, U.S. and international regulators have taken a mainly cautious approach to cryptocurrencies such as bitcoin, but with the launch of the Libra project, these regulators have been quick to raise concerns.
In fact, on the same day that Facebook announced the launch of the Libra project in June this year, Bank of England Governor Mark Carney said that Libra "will be supervised to the highest standards." Expressing similar sentiments, he raised concerns about Libra's issues with privacy, money laundering, consumer protection and financial stability, among other issues.
Since then, European Central Bank President Mario Draghi, U.S. Treasury Secretary Steven Mnuchin and FTC Commissioner Rohit Chopra have expressed similar concerns:
On July 15, U.S. Treasury Secretary Steven Mnuchin said at a press conference that Facebook's proposed digital currency Libra "could be abused by money launderers and terrorist financiers" and considered it a "national security issue."
On July 25, European Central Bank President Mario Draghi listed a series of concerns related to Facebook's Libra digital currency plan at a press conference in Frankfurt, including cybersecurity, money laundering, terrorist financing, privacy protection, and monetary policy. transmission mechanism and financial stability. "All of these concerns are substantial. They need to be addressed before regulators can look at this with real interest and active interest," he said.
In addition, Mario Draghi also stated in a signed letter published on July 25: "The European Central Banking System (ESCB) is closely monitoring innovations in the financial sector, including stablecoin projects such as Libra...Stablecoin programs must Ensure public trust by meeting the highest regulatory standards and should be subject to prudential regulation and oversight."
On August 5, senior data protection officials from the United States, the United Kingdom, and the European Union issued a joint statement expressing concerns about the Libra project's protection of user data and financial information. The regulators said they were "surprised and concerned" by the paucity of information provided by Facebook and its subsidiary Calibra on protecting user data.
"So far, while Facebook and Calibra have made extensive public statements on privacy issues, they have not clearly stated what information handling measures they will take to protect personal information," the statement said.
Zennon Kapron, founder of consulting firm Kapronasia, believes that the reason why global regulators have these concerns about Libra is mainly related to Libra's potential for mainstream adoption. He said:
“First of all, Facebook is behind the Libra project, and Facebook will create the Calibra wallet that they have been talking about, which will likely be integrated into WhatsApp, Facebook Messenger, etc., and these applications already have billions of people in their networks. "
Kapron said: "I think this is why regulators are quite angry about Libra (not Bitcoin). The government may lose the ability to control monetary policy. Right now, the dollar has a lot of influence, and the U.S. government has a lot of influence." Because oil is denominated in dollars. Moreover, the U.S. government controls which banks can interact with the dollar. Therefore, using this sphere of influence, the dollar can really control the direction of the global economy and the global political situation. The launch of Libra may It will lead to a decline in the dollar's control."
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How did Facebook respond?
Facebook responded that by issuing Libra, Facebook is not minting a new currency, because Libra is pegged to a basket of fiat currencies (such as the U.S. dollar) to ensure its stable value. Facebook said the primary purpose of the token is to allow people to easily move money around the world.
Recently, David Marcus, the main person in charge of the Libra project, tweeted that the planned Libra stable currency will not threaten the monetary sovereignty of countries as recently declared by global regulators. Libra is designed to be "a better payment network and system that operates on the basis of existing currencies", so "there is no new currency creation, and the creation of currency will be strictly reserved as the responsibility of sovereign states."
Marcus concluded: "I look forward to the Libra Association taking full leadership of the project shortly after its charter is approved so that I can focus on building Calibra."
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Tweets by David Marcus
As for the issue of privacy protection, Dante Disparte of the Libra Association has previously stated that the organization will work to protect the data of Libra users.
How exactly is it "committed"? unknown. This is one of the reasons why Libra has been questioned.
Teunis Brosens, chief economist at ING Bank in the Netherlands, believes that although Facebook is under intense pressure from regulators, it is wise for the company to announce Libra plans so early.
He said that Facebook does not share the ideas of those so-called Bitcoin "maximalists (Bitcoin maximalists)", or pin their beliefs on Bitcoin, the world's most well-known cryptocurrency, rather than traditional financial institutions. Serve.
"Facebook didn't follow this 'maximalist' model of opposing the traditional financial system, or even Uber's model of first fire and then respond," Brosens said. "Instead of engaging with regulators first, that's their approach Way."
“The Libra Association maintains that financial inclusion, regulatory harmonization, and addressing consumer concerns are not competing goals, but are in step with the Libra Association’s goal of providing a simple global currency and financial infrastructure,” the Libra Association said in a statement. , this infrastructure will benefit billions of people. Libra will not launch until 2020, which allows time for dialogue with regulators and policymakers around the world to consider their concerns."
In fact, Facebook has been in talks with global regulators in an attempt to allay regulators' concerns about the digital currency ahead of its planned launch in 2020.
Facebook and JPMorgan met with skeptical global central bankers in Basel, Switzerland, on Monday to discuss their planned stablecoin. [Note: JPMorgan Chase also plans to launch JPM Coin, a stable currency for large corporate customers, mainly for instant settlement of payment transactions between customers] Prior to this, Marcus of Facebook had been questioned by lawmakers on the Libra issue in the US Congress, There was an uproar.
Despite the backlash against Libra, it shows that regulators around the world are being forced to take cryptocurrencies seriously, industry experts say, even as some draw a distinction between Libra and cryptocurrencies like bitcoin and ether as not really crypto currency.
For example, some institutions seem to have reconsidered the idea of issuing digital currencies through central banks. In fact, the idea of a central bank digital currency has been proposed for some time. The Swedish central bank (Riksbank) hopes to pilot the development of a digital version of currency this year, and China's central bank even stated that the central bank digital currency it developed is "ready to come out".
Teunis Brosens of ING Bank in the Netherlands said that central banks in emerging markets may be "more open" to Libra because their economies rely heavily on the dollar. constraints."
