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Facebook Inc. once again defends Libya – this time against the fears that the crypto-currency envisaged can replace the sovereign currencies of the US dollar to the euro and threaten the control of central banks on money creation.
David Marcus, the project leader, posted a series of tweets the same day members of the Libra association met with regulators convened by a G-7 working group in Switzerland. He argued that the creation of Libra was not the numerical equivalent of printing US dollars or hitting new euros. The mere existence of Libra, he says, does not create new value.
Facebook's cryptography projects, unveiled in June, had to face stiff resistance from regulators around the world. One of the main concerns is that the new digital currency will be used by smugglers, drug traffickers and terrorists. Another reason is that the social media giant, which has already been defeating regulators for user data, should not be trusted to handle sensitive financial information. Facebook has repeatedly said that it would only be one of the many companies managing the new currency.
"Recently, there has been a lot of talk about how Libra could threaten nations' sovereignty over money," Marcus tweeted. "Libra will be supported 1: 1 by a basket of strong currencies. This means that for a Libra unit to exist, there must be an equivalent value in its reserve, "he tweeted. "As such, there is no new monetary creation, which will remain strictly the province of sovereign nations."
Monetary competition is another stumbling block for wary regulators.
In a telephone conversation that followed Marcus' tweets, Christian Catalini, Facebook's senior economist working on Libra, declined to say whether the problem had been addressed at Monday's meeting. But he did say that this element of Libra is one of the many elements "misunderstood or misinterpreted".
"All of Libra's design is really about being a fiat compliment [currencies], not a substitute, "he said.
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Libra does not exist yet and Facebook is committed not to launch until the regulators have been appeased. He hopes the currency will begin in the course of the year 2020. Facebook's shares have changed little in New York on Tuesday, at 186.70 dollars.
Regulators are worried that giving control of money creation to Facebook – or any private company – would deprive governments of one of their biggest assets: monetary policy. The reaction of central banks has varied from active engagement, as in the case of Singapore, to China, given its equivalent.
In a July blog post on the Harvard Law School Forum on "Corporate Governance and Financial Regulation," three professors who wrote an article on the regulation of Libra said it posed a threat to sovereign governments.
"Once Libya is well established in some countries, national governments will lose control of their money supply and monetary policy as a tool for economic expansion or contraction," reads the report. message. "They will also lose the ability, in times of great uncertainty, to impose capital controls to prevent capital flight. All of these changes could be extremely destabilizing for the entire global financial system. "
Catalini does not agree. He says that even for countries whose currency is not part of the Libra Reserve, there is little fear that Libra will replace the local bid because of the way the digital coin will be used. . According to Catalini, its main purpose is to facilitate payments with many fees or charges, such as cross-border credit transfers. It will be less useful for daily trading, he added.
"It is unlikely that Libra will be used locally because local currencies have better properties" for local trade, he said.
(Updates with actions in the eighth paragraph)
To contact the reporter about this story: Kurt Wagner in San Francisco at [email protected]
To contact the editors in charge of this story: Jillian Ward at [email protected], Edwin Chan, Joanna Ossinger
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