On July 7, Benoit Coeure, executive board member of the European Central Bank, said that regulators must act quickly to prepare for the entry of US tech giants such as Facebook into the financial system, Bloomberg reported. He said it was “out of the question to allow them to develop in a regulatory void for their financial service activities, because it’s just too dangerous”, and that “We have to move more quickly than we’ve been able to do up until now”. Despite his apprehensions, he seemed optimistic about the advent of digital currencies, saying that their development is exposing deficiencies in existing regulation and the banking system, and that they are a “rather useful wake-up call for regulators and public authorities, as they encourage us to raise a number of questions and might make us improve the way we do things”. This is in stark contrast to the US, where lawmakers have called on Facebook to temporarily halt its development of Libra, saying it had the potential to usurp the dollar and destabilise the global financial system (see below).
Is Europe set to become crypto-friendly?
Coeure’s comments come just days after IMF Managing Director Christine Lagarde — who has has spoken positively about blockchain and cryptocurrency — was reportedly nominated to head the European Central Bank. In a blog post last year, she had written that cryptocurrencies “could have a significant impact on how we save, invest and pay our bills” and that “policymakers should keep an open mind and work toward an even-handed regulatory framework that minimises risks while allowing the creative process to bear fruit”. In 2017, she had said that the world was about to see massive disruptions from digital currencies, and that it was time for central banks and regulators to get serious about them. She had also disagreed with comments by JPMorgan Chase CEO Jamie Dimon, who had called bitcoin a “fraud”, saying that everything to do with digital currencies could not be lumped with “ponzi-like schemes”. However, she told CNBC in April that regulators need to strike a balance between innovation and stability: “We don’t want innovation that would shake the system so much that we would lose the stability that is needed.”
UK regulators collaborating on Libra response
Meanwhile, in the UK, the three main financial regulators — the Financial Conduct Authority, the Bank of England, and the Treasury — are collaborating on how best to respond to Facebook’s push into financial services, as per Bloomberg. Andrew Bailey, CEO of the FCA, told the British Parliament’s Treasury Committee late last month that Libra had the potential to be extremely significant, and raised big issues on public policy. Bank of England Governor Mark Carney told CNBC that the central bank was approaching Libra “with an open mind but not an open door”, noting that it had the potential to improve financial inclusion and lower the costs of cross-border payments. He cautioned, however, that the new digital currency would have to meet the highest standards of regulation and consumer protection, and comply with anti-money laundering standards.
US lawmakers called on Facebook to halt Libra; two hearings this month
Europe on the whole appears far more sanguine about Libra than the US. Last week, five UK lawmakers had written an open letter to Facebook, calling on the company to cease all development of its cryptocurrency. They wrote that the Libra could create “an entirely new global financial system that is based out of Switzerland and intended to rival US monetary policy and the dollar”. During this moratorium, the lawmakers wrote, “we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail.” The letter said Libra raises “serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over two billion users, but also for investors, consumers, and the broader global economy”.
The US Congress will also hold two hearings on Libra on consecutive days this month. The US Senate Committee on Banking, Housing, and Urban Affairs will holds its hearing, titled titled “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations” on July 16. The next day, the House Financial Services Committee will hold a similar hearing.