The member of the Executive Committee of the European Central Bank (ECB) Yves Mersch said that Facebook’s cryptocurrency Libra could jeopardize financial stability.
During the Legal Conference of the European System of Central Banks (ESCB), which was held in Frankfurt am Main, Mersch noted that, unlike common crypto and fiat currencies, the social network has some differences that give rise to concerns.
Mersch considers that the ecosystem of Libra is not only complex, but it is also cartel-like. He said that the Libra Coins are published by the Libra Association, a group of global players in the field of payments, technologies, electronic commerce and telecommunications. He explained that the Libra Association will control Libra Blockchain and will collect the digital money equivalent of seignorage income on Libra. He added that Libra-based payment services will be controlled by a Facebook-controlled subsidiary called Calibra.
In other words, the Facebook cryptocurrency will be completely centralized. Additionally, a private company will keep control over it. This kind of centralization is what causes concerns to Mersch.
Regarding money, he explained that centralization is regarded as a virtue only in the appropriate institutional environment, which is that of a sovereign institution and a central issuing authority. He observed that entrepreneurship conglomerates are responsible only for their shareholders and members.
A currency in the hands of a private company, which leads to the criticism of Facebook’s Libra, was thus questionable. After all, the company does not have a central or similar bank that it can catch in times of crisis.
Regulatory difficulties with Facebook’s Libra
Another problem that Mersch addresses is the legal classification of the Facebook cryptocurrency. He thinks that Libra could be classified as electronic money, as a financial instrument or as a virtual currency. On its part, this leads to questions from the competent authority, which causes more difficulties.
This raises the additional issue of the responsible State, which is to regulate Libra or the Zuckerberg Group. In this regard, it is particularly important to develop the guidelines for the future. As a last resort, states and regulators would have to work together across borders.
Mersch explains that, as Libra will be used across borders, it is a matter of international concern. He also said that its global nature would require global regulations.
Concerns of the ECB
Basically, the ECB is very attentive to payment innovation. On its part, Facebook’s Libra provides the opportunity to decrease the ECB’s control over the euro. In fact, being a currency that competes with the euro, it could jeopardize the demand for the euro and, thus, the power of the ECB.
Mersch concluded by saying that he hopes that people will not lose their trust in the money of the central bank or the euro.
He warns people in Europe against compromising the security of the solutions and payment channels established in favor of deception. Instead, he advises leaving behind the “treacherous promises” of the Facebook siren call.
To conclude this note, investors are advised to conduct their own research into the development of new cryptocurrencies to learn more about them. In this way, they will have a much clearer vision of what is available in the market.
By Willmen Blanco