Competition for a stablecoin that has a country’s support is ramping up, and more and more government agencies are wondering why not develop their own crypto token instead of relying on Silicon Valley. For instance, there is no doubt that Facebook is a social media giant, but when they announced the launch of Libra, their digital currency, it was perhaps, not so surprising to see that there was little support in Europe even though the Libra Foundation is registered in Switzerland.
French Finance Minister, Bruno Le Maire has already shared his thoughts on Libra; and he is also suggesting that Europe should simply launch its own digital currency. Le Maire told journalists that he would discuss the feasibility of a European public digital currency with his counterparts in October. The government would have better control and tuning over tax policy with a centralized digital currency. This means that a European central bank-issued digital currency will get high fidelity with your tax policy. It agrees more with politicians and regulators.
As has been reported before, Le Maire has concerns that Libra has inherent risks for consumers and even “the sovereignty of European states. We have to make sure that there is no risk for the consumer, it is our role as a state to protect consumers. It will allow Facebook to accumulate millions and millions of data points again, which strengthens me in my belief that it is necessary to regulate the digital giants.”
It is almost certain that France will block Libra, but Germany isn’t friendly towards it either and the two are hoping that other EU countries will think the same way. However, this is not certain, as what benefits the EU’s larger countries is not always beneficial to the smaller ones. Libra’s effects are beginning to spread in the EU and Le Maire’s announcement comes at a time when EU politicians are becoming increasingly vocal about Libra and digital currencies in general.
What is Libra’s goal?
Cryptocurrencies are developed to replace the current financial system with a decentralized P2P economy. Although cryptocurrencies do not threaten sovereign states by their own existence, they do represent a financial system in which the state does not have sovereign control over all finances operating within its borders. At the current stage of cryptocurrency adoption, if states do not exercise control over the financial system, it would eventually lead to a decline in the fiat-based economy’s stability.
One of the leading goals of Facebook’s Libra is the potential for its 2.7 billion users to send instant cross-border payments through its platform. As it stands, cross-border payments for individuals and financial institutions alike are costly, time-consuming procedures.
Although prices vary from bank to bank, individuals seeking to transfer funds across international borders often face transaction charges, along with additional incurred losses from unfavorable exchange rates. This is particularly problematic for workers looking to send home funds earned abroad in the form of remittances. Le Maire said that the European block needs to focus on reducing the cost of cross-border payments. The French Prime Minister has repeatedly called for regulators to refuse Libra’s launch in the EU, stating that he plans to request guarantees from Facebook that its digital currency would not be exploited for illicit activities.
France intends to block the project in the EU and this makes Eurocoin a direct threat to Libra. Thomas Heilmann, a German politician responsible for the Christian Democratic Union (CDU) blockchain initiative in Bavaria, also poured cold water on prospects for Libra approval in Europe. Heilmann said that the grand coalition had agreed “not to allow market-relevant private stablecoins.”
Mr. Heilmann outlined his view that the economy is well-served by central banks and that one strong digital currency could create a monopoly: “Up to now, the economy has done a great job in countering crises and inflation with measures taken by central banks. Once a digital currency provider dominates the market, it will be quite difficult for competitors.”
Heilmann’s comments were echoed by German Vice-Chancellor and Finance Minister Olaf Scholz during a discussion in Berlin on Sept. 17 in which he said that Libra will be rejected. German regulators have outlined their intention to work alongside their European colleagues to ensure that stablecoins do not become a viable alternative to traditional currencies.
What is Libra doing to alleviate regulatory pressure?
On September 16, the Libra association met with 26 central banks in the form of the Committee on Payments and Market Infrastructure (CPMI), which counts the Federal Reserve and the Bank of England among its members. Although the meeting could yield positive results, Benoit Coeure, a European Central Bank (ECB) executive who reportedly chaired the event in Basel, tweeted that the bar for regulatory approval in the EU would be very high. Midway through the landmark meeting between Libra founders and the BIS committee, Calibra CEO David Marcus tweeted in support of the Libra Association. In a Twitter thread addressing the “monetary sovereignty of Nations vs. Libra,” Marcus sought to debunk theories that the project could be an attack on state finances:
“Libra is designed to be a better payment network and system running on top of existing currencies, and delivering meaningful value to consumers all around the world.”
While many of Europe’s regulators are deliberating about how best to regulate Libra, head of the Swiss Financial Market Supervisory Authority (FINMA), Mark Branson, stated earlier in September 2019 that the project fits perfectly into their regulatory framework. The watchdog also notes that an internationally coordinated approach is required due to the cross-border nature of Libra in order to establish adequate requirements for its reserve management and AML system.
Libra may suffer in the competition with centrally issued digital currencies, however, there are takers for the social media giant’s token and a strong use case may lead the way for Libra’s adoption globally.
Disclaimer
Content provided by CryptoTraderNews is for informational purposes only, and should not be construed as legal, tax, investment, financial, or other advice. All information is of a general nature. As always, there is risk with any investment. In exchange for using our products and services, you agree not to hold CryptoTraderNews Pro, its affiliates, or any third party service provider liable for any possible claim for damages arising from decisions you make based on information made available to you through our services.
