Facebook’s Libra, according to the president of a European think tank, might not get approved for its launch next year but it could definitely spur the creation of a different digital global currency.
In June this year, the social media giant first proposed its plan to create a new cryptocurrency called Libra, but since has been facing regulatory scrutiny worldwide. On Wednesday, CEO Mark Zuckerberg testified before the US House Financial Services Committee, but lawmakers aren't satisfied.
Beatrice Weder di Mauro, president of the Centre for Economic Policy Research, believes Libra is unlikely to get the green light.
“What libra has done is … it has shaken up the central banking community,” she said, because a private sector-backed, global digital currency has suddenly become a real possibility. And this is why it is not going to happen, she said, because “the regulators are right now saying we are not going to allow it.”
But what makes it “threatening” to central banks? It is that the stablecoin is promoted as an international currency backed by the world fiat currencies and could be rolled out “very, very quickly.”
“The probability of something like this happening, either from the private sector or because central banks actually get together and do something … is higher now,”
Weder di Mauro said.
“Central banks would be able to, if they banded together, to issue a global currency themselves,”
This can show the advantages of an international monetary system with a global currency over the current system where “there is a huge dominance of the dollar.”
Libra has generated a “tremendous amount of new thinking”
Earlier this week, Ravi Menon, managing director of the Monetary Authority of Singapore also said that central banks “need to answer” the challenges posed by Facebook’s faster and more affordable payments network.
About 1.7 billion worldwide are still “unbanked” while according to a study on worker remittance by the World Bank, the global cost of sending as much as $200 remains high at about 7%.
Facebook’s project, Menon says, has generated a “tremendous amount of new thinking” in certain areas.
“They are pointing to a correct problem, they are offering a solution,” he said. However, the challenge is to see if similar results can be achieved “within the existing banking framework — which is tried and tested,”
As for the project itself, banks may be forced to stop working with the company if it launches Libra, said ING CEO Ralph Hamers, citing money laundering concerns.
“We can take measures and exit the client, or not accept the client, so those are discussions you would have to have,”