Facebook’s Libra could potentially solve some of the problems in the international payments market, but it might create a number of others that will require creative thinking by the regulators, says an European central banker.
In comments to the German federal parliament Bundestag on Wednesday, Benoit Coeure, a member of the Executive Board of the European Central Bank (ECB), said “Libra has undoubtedly been a wakeup call for central banks and policymaker,” and they should respond to these challenges.
He added that stablecoins, in particular Facebook’s Libra cryptocurrency, could help connect the 1.7 billion people globally who are now off the financial grid while at the same time making cross-border payments cheaper, faster and more transparent.
In improving access and facilitating cross-border retail payments, they could address two key deficiencies in the current architecture of the market.
Libra, which is being supported by a consortium led by Facebook, will be connected to a huge existing user base, giving it a “truly global footprint,” according to Coeure, who chairs the Committee on Payments and Market Infrastructures at the Bank for International Settlements. He is also the head of the Group of Seven (G7) Committee on stablecoins.
The central banker raises a number of concerns about stablecoins. He said that they can be used for laundering money and financing terrorism, and he notes the possibility of consumer protection, data security, network stability, competition and taxation issues.
He adds that stablecoins have serious implications for monetary policy and financial stability, as the coins can have an impact on money supply outside the normal channels, while the failure of the promised peg or the loss of confidence could have systemic implications.
“There may be the risk of the monetary sovereignty of countries being infringed,” he was quoted as saying in written summary of his comments, which was published by the Bank of International Settlements.
While he believes that much can be done to regulate the new products within existing policy frameworks, he said that new approaches are needed. He also said rules need be applied in an “internationally consistent” manner, suggesting a degree of coordination between institutions globally.
In the comments, he said that the G7 group on stablecoins would be offering its recommendations in time for the IMF-World Bank meeting, which runs Oct. 14-20.
His comments come as Libra faces hostility from some quarters, especially in Europe and China, but are in line with previous statements by the central banker, indicating that a consensus is developing around a balanced approach of welcoming but tightly supervising the stablecoin.
ECB image via Shutterstock