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Facebook Libra continues spooking central banks despite shrinking council

Posted: 29 January 2020 4:41 pm
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Public expectations of Libra are shrinking, but central banks are taking it more seriously than ever.

When Facebook revealed the Libra stablecoin, it came with a council of 28 organisations. By the time the council signed itself into formal existence, that number was down to 21. The departures have continued since then, with Vodafone being the latest council member to leave.

While these departures make happy headlines for anyone who has a bone to pick with Facebook, and generally indicate how much pressure Libra Association members are feeling, the Libra Association's governance system is designed to handle members coming and going.

"Although the makeup of the Association members may change over time, the design of Libra’s governance and technology ensures the Libra payment system will remain resilient," the Libra Association said in a statement.

Still, the continuing departure of Association members could be one of the main factors shifting sentiment away from Libra. According to one survey of inhabitants of the fintech, venture capital and digital assets space, the majority of people are no longer expecting Libra to launch in 2020.

But you wouldn't know it to look at the activity at central banks. A decent-sized and possibly growing number of people probably already consider Libra dead and buried, but many central banks appear to be operating under the assumption that Libra won't be held back forever and that they still have to prepare.

Teamwork

On the same day Vodafone left the Libra Association, the Bank of International Settlements (BIS, or the "central bank of central banks" if you're feeling grandiose) unveiled a multinational working group consisting of the central banks of Canada, England, Japan, Sweden and Switzerland and the European Central Bank to share information as they all move towards developing their own central bank digital currencies (CBDCs).

"The latest decision [by the six central banks] is not just about sharing information. It's also an effort to keep something like Libra in check," said Hiromi Yamaoka, former head of the Bank of Japan's payment and settlement systems division, quoted by the South China Morning Post.

"Something like Libra would make transactions costs much cheaper. Major central banks need to appeal that they, too, are making efforts to make settlement more efficient with better use of digital technology."

Former People's Bank of China deputy governor Min Zhu also cited Libra as the reason why China should join the global dialogue around digital currency regulation.

"I think it’s critically important to join the discussions and take part in coordinated global regulation of Libra," he said.

One of the differences between Libra and other competing central bank digital currencies is that Libra, as an extra-national currency, can't be effectively regulated in isolation by a single country, said Ba Shusong, former researcher at China's State Council Development Research Centre, and current chief China economist for the Hong Kong stock exchange.

Fighting money laundering, for example, is an international affair, and international cooperation would be required to decide how Libra can satisfy concerns here.

"You would need to first improve the regulatory framework for [financial] technology," the SCMP quotes Ba as saying. "There is a need for global cooperation for an alternative regulatory framework."

Another reason for all the talk of cooperative international regulation might be because the United States has traditionally driven and exported global regulatory standards, but it's really dropped the ball in the digital asset space.

"In the long, long run, cryptocurrencies and things of that nature could matter," said Federal Reserve chairman Jerome Powell in July 2018. The "long, long run" was apparently less than a year in that case because Libra was revealed not long after.

As the Bank of International Settlements found, Libra utterly blindsided most central banks.



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Disclosure: The author holds BNB and BTC at the time of writing.

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