The European Central Bank has warned of the “beguiling but treacherous promises” of Facebook’s proposed Libra cryptocurrency, saying the asset could compromise the ECB’s ability to set monetary policy.
“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,” said ECB board member Yves Mersch at a conference on ECB legal issues in Frankfurt am Main on Monday.
Facebook announced Libra earlier this year, saying it plans to provide the currency as a way to make payments independent of nationally issued money. The company has said it plans to launch Libra early next year.
Mersch noted that, like nationally issued currencies, Libra is highly centralised, but that, unlike conventional currencies, it is not backed by a lender of last resort and is ultimately only accountable to shareholders.
This is an “extremely concerning” structure, since shareholders are not seen as repositories of public trust, he said.
“(Libra) 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 said.
He called on European regulators and other authorities to assert jurisdiction over Libra and to seek global cooperation to allay 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.
He said that central banks’ approach to currency would continue to evolve, but warned that privately issued currencies such as Libra or other crypto-assets “can only fulfil some, but not all, of the functions of money”.
As such, they serve as a reminder of central banks’ role in ensuring “public trust in money”, as well as “the need for vigilance towards phenomena capable of undermining public trust in the financial system”, Mersch said.
“The stance of central banks toward modern forms of money is bound to evolve with time,” he said. “Central bankers have embraced technological developments in the field of money and will continue to explore helpful new innovations.”
Regulators and lawmakers have expressed concerns over Libra since it was announced, with the issues raised including the currency’s potential for violation of money laundering and data protection rules.
The European Commission is also carrying out an early-stage antitrust probe into how Libra will be run and how its payment system will work.