Facebook splits UK, EU on payments

Facebook’s new payment initiative, Libra, is already causing discord between policymakers in the UK and those in other European Union countries.

Libra, which is heavily backed by Mark Zuckerberg’s social media giant, announced in June it was aiming to set up a new global digital currency.

Libra, a digital coin, will be available to the general public and the 2bn-plus users of Facebook’s social networks, which include WhatsApp, Messenger and Instagram. The launch is planned for 2020.

Libra’s value will be backed by currency held in reserve in the form of securities or deposits in bank accounts.

When announced in June, the new digital money project met with a mixed reception from the Bank of England, whose governor, Mark Carney, said that while he had an ‘open mind’ to Libra, there would be no ‘open door’ to the cybercurrency.

If Libra were successful in attracting users “it would instantly become systemic and will have to be subject to the highest standards of regulation“, Carney said.

However, policy actions taken by the Bank of England have since suggested a more welcoming stance to the concept.

Later in June, the Bank of England said it was opening up its payments infrastructure to non-banks. And in August, Carney called for a new global reserve currency, potentially modelled on Libra but run by governments, to replace the US dollar in international trade.

With the UK heading towards Brexit on 31 October, other European Union policymakers are now taking a much more outspoken anti-Libra line.

“We cannot authorise the development of Libra on European soil”

This morning France’s finance minister dismissed outright the possibility of Libra gaining approval in the European Union.

“I want to be absolutely clear: In these conditions, we cannot authorise the development of Libra on European soil,” said Bruno Le Maire, speaking at the opening of an OECD conference on cryptocurrencies.

Le Maire said France would block the development of the new currency as it represented a direct threat to monetary sovereignty.

Earlier this month, a senior official at the European Central Bank (ECB) also took a harsh anti-Libra line.

“Libra 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,” Yves Mersch, an ECB board member, said on September 2.

Meanwhile, Libra has put feelers out to non-EU Switzerland’s financial market regulator, FINMA, regarding possible regulation.

Libra is run by a Swiss-based Association with 28 members from across the payments, technology, telecoms, blockchain, venture capital and non-profit sectors.

“The Libra Association asked FINMA for an assessment of how the supervisory authority would classify the planned Libra project including the issuance of a ‘stable coin’ under Swiss supervisory law”, FINMA said yesterday.

FINMA also said Libra would need to be regulated as a systemically important market infrastructure, following international standards, and also comply with anti-money-laundering legislation.

Any risks and returns associated with the management of Libra’s underlying currency reserves would also need to be borne entirely by the Libra Association, said FINMA, and not passed on to the holders of the Libra coins.

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