Libra launch date unchanged despite backlash from European regulators

France’s finance minister Bruno Le Maire and his German counterpart Olaf Scholz expressed their concerns in a joint statement issued at a meeting of euro-zone finance ministers in Helsinki.

Libra poses a risk to investors, a threat to financial stability, and even a challenge to "the monetary sovereignty" of European states, claims the statement. "France and Germany consider that the Libra project, as set out in Facebook’s blueprint, fails to convince that those risks will be properly addressed. We believe that no private entity can claim monetary power, which is inherent to the sovereignty of Nations."

A wake-up call for Europe

Just as Libra appears to have accelerated the development of China’s digital yuan, it has also shaken European bankers into life. In the words of European Central Bank (ECB) board member Benoît Cœuré, Libra is a “wake-up call” for Europe to improve the effectiveness of its international payment solutions.

“We encourage European central banks to accelerate work on issues around possible public digital currency solutions” that would make projects like Libra unnecessary, said Le Maire and Scholz in the joint statement.

One possible solution is TIPS —TARGET Instant Payment Settlement — which launched in November 2018 to enable instant transactions across Europe, around the clock, at a fixed fee of just 0.20 eurocents.

This payment infrastructure would see the ECB compete with PayPal and other tech giants, however, it failed to gain traction as European banks were reluctant to sign up.

Since then, rumors have swirled of a proposed central bank digital currency, which Cœuré suggests should be developed faster in light of the impending launch of Libra, “We also need to step up our thinking on a central bank digital currency,” said Cœuré.

Little is known about the European Union’s plans for a cryptocurrency, but according to a Reuters report, an ECB official has said that the project would do away with the need for "bank accounts, financial intermediaries, or clearing counterparties" by allowing consumers to use electronic cash that could be deposited directly at the ECB.

As the electronic cash would be issued directly from the ECB — in much the same way that Libra tokens would be issued directly from Libra — there would be less need for bank accounts and financial intermediaries, doing away with the need for TIPS.

"We are not going to create money"

While European powers scramble to come up with an innovative response to Libra, scrutiny over Facebook’s stablecoin continues.

Officials from 26 central banks met with Libra representatives in Basel on Monday to quiz them on the threat the digital currency poses to financial stability in the European Union. Benoît Coeuré, who chaired the meeting, advised that “the bar for regulatory approval will be very high” for Libra to operate in the area.

If previous comments are anything to go by, Libra’s defense is likely to be that the project has been misunderstood by regulators.

Speaking to French publication Les Echoes last week, general director of the Libra Association Bertrand Perez suggested that regulators have misunderstood the project. He maintained that the stablecoin will launch as planned in the second half of 2020.

"We are not going to make money creation. We are not here to do the work of the banks," said Perez to Les Echos. "We will not become a new BlackRock. This is why the fears about the destabilizing aspect that this reserve could have on the monetary policy of the central banks whose currencies appear in our basket do not seem to us to be justified. It is their monetary policies that will influence the Libra through the basket and not the other way around."

Facebook’s David Marcus waded into the debate on Twitter to support his colleague, claiming that Libra does not intend to form a new currency but rather will build a better payment network and system running on top of existing currencies.

"Libra will be backed 1:1 by a basket of strong currencies," tweeted Marcus. "This means that for any unit of Libra to exist, there must be the equivalent value in its reserve."

The competition between corporate digital currencies, decentralized digital currencies, and central bank digital currencies is now underway.