The Libra project, Facebook’s digital currency, has brought about a profound change in the thinking of central banks, which until now have been calm with the monopoly on the creation and control of money. The possibility that a private company creates a currency that, far from having a residual use, could put in check the hegemony of the main currencies, has set off all the alarms.
Central bank issues
“Central banks take digital currencies much more seriously today after the Libra project. Many have reflected on the payment system because they see the threat,” Tobias Adrian, financial adviser to the Bank of Spain, explained at a conference organized by the Bank of Spain. International Monetary Fund (IMF).
Central banks in up to seven different countries have sped up the process of creating or testing their respective digital currencies. Among them, the Bank of Uruguay stands out, which experimentally launched the e-peso between 2017 and 2018, and the Central Bank of China, which last month announced that it was “almost ready” to launch its digital currency.
But the central bank project continues to differ greatly from the one that Facebook put on the table in June and which has now been paralyzed by the disagreement with supervisors. Monetary authorities want their digital currency to be a substitute for cash, but “without limiting the ability to shape the liquidity available in the system.”
Because stablecoins developed by companies continue to have more drawbacks than advantages for the authorities. Among the risks detected by the G7 for digital currencies by companies, there are cybersecurity problems, the possibility of promoting money laundering or financing of terrorism and other criminal activities, and tax evasion. In addition, if these assets achieve systemic importance, such as the one assumed for the Facebook Pound, to the list are added possible disruptions to financial stability and the transmission of monetary policy due to the use of a currency not controlled by the authorities.
Launching working group
For this reason, the working group that launched the G7 to study these new assets, led by the French Benoît Coeuré called for “the highest regulation”. “No stablecoin project should be operational until it complies with all legal, regulatory and supervisory requirements and until the risks it may pose are properly addressed,” explained Coeuré, who also heads the Bank’s payments and market infrastructure committee. International Payments (BIS), in October, in the publication of the final report of this working group.