Central Bank Chief Says Facebook’s Libra Would Have ‘Greater Potential’ in Emerging Markets
- Germany testing a blockchain as a supplement to the previous central, account-based solution
- Facebook’s Libra will create an exchange rate risk for the users
- It has the potential to become a dominant player right from the start
On the backdrop of Germany's second-largest bank, DZ-Bank’s report that says crypto usage is “just a matter of time,” cryptocurrencies made its way into 2020. As DZ analyst Sören Hettler talked about a “change in citizens' expectations,” central banks are working on their own digital currencies.
However, Bundesbank President Jens Weidmann doesn’t believe in going with the state right away. He said:
“In a market economy, it is first up to the company to develop an appropriate offer for customer requests. Competition gives legs to market participants.”
As for the one the bank is developing, he says it is about payment transactions between the central bank and other banks.
“We are testing a blockchain as a supplement to the previous central, account-based solution,” said Weidmann. But initially blockchain, he says is “no more efficient than a central processing.”
And China might be ready to launch its central bank digital currency, but Weidmann says they have a different political system, adding that “a social market economy will ultimately find better solutions in a free society.”
Sweden is another one that has plans for e-Krona as cash gets increasingly out of use. But in Germany, as Weidmann says three-quarters of all payments are still made in cash. Even then, deposits with banks are another available option.
But he assures, “it is clear that we will provide cash as long as citizens want it to.”
Libra has the potential to become a dominant player
“Facebook is planning a digital form of payment, tied to a basket of multiple currencies such as the euro and the US dollar. This creates an exchange rate risk for the users. We have stable money with the euro that has proven itself over the past decades.”
Moreover, according to him, such a currency has “greater potential” in countries such as emerging markets where their official currency is weak and the payment infrastructure is not well developed.
But the fact that the social media giant has more than two billion users, it has such a strong impact that Weidmann says, “would give Libra the potential to become a dominant player right from the start.”
However, one of the criticisms thrown at Libra is that it threatens to create a private monopoly. To prevent that, regulators want the digital currency to follow regulations that prevent money laundering and terrorist financing.
Weidmann also wants banks to counter Facebook by focusing on speed, ease of use, low costs, and security.