Facebook's announcement of Libra as a worldwide stablecoin has Central Banks all around the world worried. European Central Bank board member Benoit Coeuré said in a meeting on Wednesday that Libra has been a wake-up call for Central Banks all around the world. Facebook has the reach with its existing customers and could become 'the first to have a truly global footprint' with its digital currency.
Coeuré addressed stablecoins in general and Libra especially in a meeting of BIS, a governing institute for 60 Central Banks worldwide. Over the past decade Central Banks have seen multiple initiatives to introduce digital money, bitcoin being one of them. But none of these initiatives have the immediate market reach Facebook has: More than 2.1 billion people worldwide use Facebook, Whatsapp, Instagram or Messenger every single day. The announcement of Libra sure changed something at Central Banks.
Libra has undoubtedly been a wake-up call for central banks and policymakers. Global "stablecoin" initiatives are the natural result of rapid technological progress, globalization and shifting consumer preferences. The demand for fast, reliable and cheap cross-border payments is bound to grow further in coming years. Policymakers and central banks should respond to these challenges.
Benoit Coeuré, BIS meeting, Berlin, September 25th 2019
In a speech Coeuré did in July, he already highlighted the power of stablecoin on a blockchain. He claimed that a global stablecoin is faster and cheaper, and could spur competition in payment services and therefore lower costs. It could also include more people in the financial system, even though that of course remains dependent on regulations. However, the board member of the ECB concluded that public and private efforts to upgrade the existing payment systems need to step up their game or stablecoins will take over.
Central Banks don't want to lose their power, and therefore there's enough criticism on crypto as well. They claim that stablecoins have never been tested at the scale needed for a global payment system. On top of that they give rise to 'a number of serious risks', including money laundering and terrorism financing. On top of that they mention consumer and data protection, cyber resilience, fair competition and tax compliance. Let's keep in mind that the banks and governments lose their power when cryptocurrencies become a standard.
To them stablecoins can threaten financial stability. The national currency will become less relevant of course. In order to embrace stablecoins, governments and Central Banks should impose strict regulations to 'ensure that coin holders have confidence that their coins are redeemable at par, in good times and in bad'. There should be worldwide regulations according to Benoit Coeuré. On top of that a stablecoin project has to be legal, governed, cyber resilient, safe and transparent.
Libra isn't the most loved cryptocurrency project on the market. However, it can provide an excellent introduction into using bitcoin, litecoin and other currencies. On top of that the reach of Facebook is impressive. That's the reason countries like Germany and France have already banned Libra. Governments never talked about bitcoin in the way they talk about Libra. That's the result of Facebook's market reach.
The two countries stated that “no private entity can claim monetary power, which is inherent to the sovereignty of nations”. Simply put, Libra can take away power from the euro. That's why these countries don't want it to exist. On top of that they claim Libra can increase problems with money laundering and terrorism financing. Rather they would introduce an European stablecoin, tentatively named 'EuroCoin'.
Stories about a totalitarian state, like in George Orwell's 1984, might seem a bit far fetched. But governments are moving away from cash payments in order to monitor money flows. In The Netherlands the government wants to make cash payments of 3000 euro or more illegal. The Swedish government wants to move away from cash completely, only allowing digital payments. In addition new laws for cryptocurrency exchanges determine that they need to record who buys cryptocurrencies and where they send it. On top of that Japanese regulators are not allowing cryptocurrency exchanges to trade in privacy coins like Monero, PIVX, Zcash, Dash and Horizen.
Governments do this to combat money laundering and stop the financial support of terrorism worldwide. Which is great. But they do this by taking away the liberty and privacy of their citizens. At the same time criminals use the regulated cash system for money laundering. The estimated amount for money laundering globally in just one year is somewhere between $800 billion and $2 trillion. That would be four to ten times more than the entire cryptocurrency market cap combined.
For the past year there have been multiple institutions warning for the rise of stablecoins. IMF called stablecoins a threat to banking and cash, while even the G20 have signed a joint agreement to work together on regulating cryptocurrencies.
Despite all the news about regulations and threats, there have also been many positive sounds. The government of Ohio allows users to pay their taxes in crypto, using Bitpay as a payment processor. Several governments have been very progressively embracing cryptocurrencies, while classic financial institutes are slowly using bitcoin in their offering. Earlier this month ICE finally launched Bakkt, allowing trading in bitcoin futures.
Governments are trying to regulate everything as much as possible, damaging the concept behind cryptocurrencies in its pure basics. But at the same time we are seeing lots of adoption. It's clear that cryptocurrencies are slowly entering the lives of a mainstream audience, and right now we are standing on the door step of a new tomorrow.
