Facebook Inc’s proposed Libra currency could undermine the European Central Bank’s (ECB) ability to set monetary policy and Europe should ignore its siren call of “treacherous promises” ECB board member Yves Mersch said on Monday.
Facebook announced Libra — a new digital coin backed by four official currencies and available to billions of social network users around the world — earlier this year, saying it hoped to launch it next year.
“Depending on Libra’s level of acceptance and on the referencing of the euro in its reserve basket, it could reduce the ECB’s control over the euro, impair the monetary policy transmission mechanism by affecting the liquidity position of euro-area banks and undermine the single currency’s international role,” Mersch said in a speech at the ECB’s legal conference in Frankfurt.
Photo: Reuters
Like regular currencies, Libra would be highly centralized, an “extremely concerning” setup since it is not backed by a lender of last resort and is ultimately accountable to shareholders, who are not seen as repositories of public trust, Mersch said.
“It is scheduled for release in the first half of 2020 by the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from their handling of personal data on their social media platform,” Mersch added.
Given these challenges, European regulatory and supervisory authorities would need to assert jurisdiction over Libra and would also need global cooperation to mitigate its risks.
“I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favor of the beguiling, but treacherous promises of Facebook’s siren call,” Mersch said.
Eurozone policymakers have sounded the alarm over Libra ever since Facebook unveiled its plans in June.
Bank of France Governor Francois Villeroy de Galhau has warned that it raises serious questions about money laundering and data protection, while Mersch’s Executive Board colleague Benoit Coeure, who chairs an international working group on Libra, said that a prolonged discussion among regulators might be needed before it can launch.
EU antitrust authorities are also conducting an early-stage probe examining how the Libra would be run and how the new payment system would work.
Bank of England Governor Mark Carney recently laid out a radical proposal for an overhaul of the global financial system that would eventually replace the US dollar as a reserve currency with a Libra-like one, stealing the march on digital currencies.
Additional reporting by Bloomberg
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