Facebook’s crypto currency faces pre-G20 examination

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LONDON, June 26, 2019 (BSS/AFP) – Heading in to the G20 summit, Facebook is
on notice from powerful regulators including the Fed chief that its ambitious
plans for a global crypto-currency face piercing scrutiny.

The Libra coin is endorsed by a heavyweight consortium of companies, and
could see Facebook leverage its two billion-plus users to bring crypto-money
out of the shadows and into the mainstream.

But Federal Reserve chairman Jerome Powell, addressing the launch for the
first time on Tuesday, added his considerable voice to warnings heard already
from regulators in Europe and from US lawmakers.

“We’re looking at it very carefully,” Powell told an event sponsored by
the Council on Foreign Relations in Washington.

“Given the possible scale of it, I think that our expectations from a
consumer protection standpoint, from a regulatory standpoint, are going to be
very, very high,” he said.

Facebook promises the new currency, launching next year, will slash
transaction costs and bring more services to people without access to the
banking system.

But for regulators, Libra is potentially a loose cannon in the armoury of
international finance, and Powell was not alone this week in starting to
erect his defences as the G20 leaders prepare to meet in Japan this weekend.

Randal Quarles, chairman of the international Financial Stability Board
and a deputy to Powell at the Fed, presented a report to the G20 leaders
highlighting the risk of crypto-assets being exploited for money-laundering
and financing of terrorism.

“Though crypto-assets do not currently pose a risk to global financial
stability, gaps may occur where crypto-assets fall outside the scope of
regulators’ authority or from the absence of international standards,” he
wrote in a letter to the leaders.

“A wider use of new types of crypto-assets for retail payment purposes
would warrant close scrutiny by authorities to ensure that they are subject
to high standards of regulation,” Quarles added, in a nod to Libra.

– One rule for all –

The Libra consortium is to be based in Geneva, and the Swiss Financial
Market Supervisory Authority confirmed last week that it was looking into the
plans. In a bid to ensure Libra does not go the chaotic way of crypto units
such as bitcoin, it is to backed by a basket of real-world currencies
including the dollar and euro.

To mint and store new coins, access to its underlying “blockchain”
technology will be more restrictive than for the free-for-all of bitcoin.

Bitcoin itself has got a new lease of life on the back of Facebook’s
announcement last week, with its value rising to above $12,000 on Wednesday.

But much about Libra remains to be resolved to regulators’ satisfaction,
such as the potential for abuse by bad actors, the exchange rate risk for
cross-border transactions, and the unit’s liquidity in times of financial
crisis.

“The ambition of the project is huge, but it can only exist by respecting
the rules that are in place for everyone,” Bank of France governor FranOois
Villeroy de Galhu told this week’s edition of news magazine L’Obs.

In Britain, Financial Conduct Authority chief Andrew Bailey said Tuesday
that his agency was working with the Treasury and the Bank of England on
Libra, which he said “has the potential to be extremely significant”.

“We will have to engage both domestically and internationally, with both
Facebook and this other organisation (the Libra consortium),” he told the
Treasury select committee in the House of Commons.

“They are not going to walk through authorisation without that,” Bailey
cautioned.

There was no immediate comment from Facebook to the mounting clamour from
financial overseers. Beyond the G20 summit, finance ministers from the G7
club of advanced economies are likely to discuss Libra when they meet in
France in mid-July.

On Monday, Facebook’s head of global affairs and former British deputy
prime minister Nick Clegg said governments, not companies themselves, must
regulate social networks on issues including data privacy and election rules.