It had already become accustomed that the alliances of the major economic powers are no longer what they once were: G20 meetings dominated by the trade conflict between the US and China, and the G7 was more G6 against Trump. All the more proud are the finance ministers of the seven major industrialized countries now about a joint conclusion. Facebook makes it possible, the Internet giant and its planned currency Libra have become common enemy.
At their meeting in Chantilly near Paris, the ministers and heads of the major central banks expressed unanimous “serious concerns” about the Facebook money. This is a warning shot that will make it hard for the Internet giant to realize his plans on time. In the opinion of financial experts, Libra could benefit many consumers enormously – if they do it right.
Facebook boss Mark Zuckerberg had presented his idea for a new currency in June, 28 private companies such as Mastercard, Visa, Paypal and Uber are among the partners. The goal: By 2020, users should be able to buy with classic currencies such as dollar, euro or yen Libra. Through apps like Facebook’s chat services WhatsApp and Messenger, they could then transfer money, split restaurant bills among friends and pay online. Price fluctuations should be avoided by linking Libra to a basket of established currencies and hedge it with government bonds.
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“Democracy is endangered”
Especially for transfers across national and currency borders such digital currencies could bring progress, says Bundesbank chief Jens Weidmann. Because so far, such transfers often take days – and cost a lot of money. In countries with highly volatile currencies, Libra could provide security. However, like the finance ministers, Weidmann also sees major risks: a credit risk if the provider is not solvent in the return, an exchange rate risk if the digital currency is not coupled to the user’s home currency. Possibly also risks to financial stability.
Finance Minister Olaf Scholz (SPD) goes even further: he sees democracy as endangered. It is about “whether we have our own skills in our own hands,” he said on Thursday after the meeting with his counterparts. The state could massively lose influence on the monetary and financial system. There are also concerns that Libra could facilitate money laundering. Because a Facebook account with the wrong name could easily and anonymously exchange dirty money in Libra – and later in dollars or euros. Also for terror financing, so the fear, door and gate could be open.
At the international level, therefore, action must be taken very quickly, says Scholz. Even US President Donald Trump and his Treasury Secretary Steven Mnuchin are skeptical – although Facebook is an American company. The finance ministers, it is said, would simply ban Libra. Or make the conditions at least so unattractive that Facebook gives up its plans by itself.
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Make Libra introduction as difficult as possible
The Libra in a market economy can not be simply forbidden, according to experts. But you can at least make it as hard as possible Facebook. The finance ministers and central bankers want to set the highest regulatory standards.
If loans were offered, the Libra consortium would have to be seen as a bank, it is said – and no economic sector is as comprehensive and tightly regulated as this one. One would fall under the bank regulation, would need about a bank license, arrangements against money laundering and terrorist financing and would have to explain how the money is put on. Facebook states that the individual Libra wallets – so to speak digital purses – should be subject to the usual regulations.
The digital money does not compete with national currencies, emphasizes the responsible Facebook manager David Marcus. It should also be more of a payment system – similar to Paypal – and no investment or Speculation object. One would not influence the monetary policy of the central banks. In addition, the Libra Association, which is to control the system from Geneva, should be supervised by the Swiss Financial Market Authority Finma.
Many remain unclear. Who exactly provides consumer protection, for example, when a user from the US uses a Libra wallet from Spain? How safe are illegal financial transactions prevented? Will you be allowed to use anonymous accounts? For the overseers it’s a red cloth. “Know Your Customer” is the principle of the financial world. Before all this is answered, Libra should not start, Scholz makes it clear. “In no case can such an initiative be set up without all these questions having been clarified in advance.”
But the finance ministers are afraid of other things: they are worried that the Libra could even become stronger than the dollar over time. But do you have to fear competition from a currency that itself is linked to the euro and the dollar? Which American consumer should exchange all his money in Libra and accept price fluctuations that he would not have with the dollar? Really interesting would be Libra, say the bankers, at most in small countries with weak currencies.
Facebook recently said in the US Congress that if the online network consortium did not introduce a digital currency, it may become a Chinese company. And that would be much worse to regulate with Western standards. The G7 countries have another solution in their pocket: They want to make transfers easier, faster and cheaper internationally – and hope to take the wind out of the sails of Facebook and other interested parties.
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