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Can You Bank With Facebook?

Facebook wants to introduce a new cryptocurrency dubbed Libra next year. But fearing widespread economic destabilisation due to lack of regulation and oversight, France and Germany call for a halt to the project, recommending the EU create its own stablecoin instead.

In June, Facebook proposed its own cryptocurrency called Libra, ostensibly to offer an avenue to currency for the cashless. But since announcing the project, the tech giant has faced multiple hurdles in both Europe and the USA, with France and Germany eager to kill the project altogether. A recent joint statement from France and Germany blocking the new crypto-project affirmed that “no private entity can claim monetary power, which is inherent to the sovereignty of nations”.

Some experts warned that the new e-coin could shift control of the economy from banks and governments – who historically have control over minting coins – to the hands of big business, and EU governments are concerned that the digital currency would threaten the continent’s already shaky financial stability by undercutting the euro, thereby posing a risk to EU states’ sovereignty.

Officials from 26 central banks, including the US Federal Reserve and the Bank of England, met with Libra representatives in Basel to discuss the currency’s design and scope, but France and Germany have already publicly criticised the currency, with France explicitly aiming to block its development. France, instead, is promoting the development of a public alternative.

France’s Finance Minister, Bruno Le Maire, was adamant that Libra cannot debut until the concerns over consumer risk and government monetary sovereignty are fully addressed. Speaking at the Organisation for Economic Cooperation and Development in Paris on September 12th, he said, “I want to be absolutely clear: in these conditions, we cannot authorise the development of Libra on European soil”.

A major concern is that Libra would allow people to abandon national currencies in times of economic crisis. This would make government efforts to address situations much more complicated. The Governor of the Bank of England, Mark Carney, said that Libra would have to meet the highest standards of prudential regulation and consumer and data protection, as well as address money laundering concerns.

Le Maire was much more explicit: “The monetary sovereignty of countries is at stake from a possible privatisation of money … by a sole actor with more than 2 billion users on the planet.”

“Libra also represents a systemic risk from the moment when you have 2 billion users. Any breakdown in the functioning of this currency, in the management of its reserves, could create considerable financial disruption”, Le Maire said.

If Libra were to be established as a currency that competes with the dollar, euro, or other currencies, Facebook would become “too big to fail”, like banks that governments cannot allow to go bankrupt lest they destabilise entire economies. That means if Facebook were to one day collapse, any money users had in their Calibra wallets would not be covered by government guarantee like regular bank accounts are, in turn affecting the entire economy.

Libra also raises anxiety about consumer privacy in light of the Cambridge Analytica scandal, which drew attention to Facebook’s mismanagement of consumer data. The tech giant has also been criticised for its role in the spread of false news and extremist videos. Furthermore, other cryptocurrency investors have suffered losses when their online stash was raided by hackers.

In an interview with French magazine Les Echoes, Bertrand Perez, General Director of the Libra Association, attempted to wave away Le Maire’s concerns, saying that “These concerns about the destabilising effect our reserve currency could have on central banks’ fiat currencies — which figure in our basket — seem unfounded to us… The year we’ve taken prior to release will allow us to iron out all the problems.”

“It is their monetary policies that will influence the Libra through the basket and not the other way around. We also assure central banks that we are not going to split: we are not going to make money creation. We are not here to do the work of the banks.”

How Does it Work?

Facebook has promoted the new cryptocurrency as a way to provide low-cost commerce and financial services online to more than a billion “unbanked” people – a term for adults without bank accounts, or those who use services like payday loans, which function outside the standard banking system. Facebook wants to eventually build an entire suite of financial services, such as allowing small businesses to buy ads.

But like other cryptocurrencies, Libra isn’t regulated. That means it doesn’t comply with laws that are meant to prevent money laundering or financing terror. However, unlike other cryptocurrencies, which are volatile and decentralised assets, Libra is designed to be pegged to a basket of real-world currency assets to reduce its volatility. Libra will not be fully decentralised, but it will be entrusted to a Swiss-based non-profit called the Libra Association.

Dante Disparte, the Head of Policy and Communications at the Libra Association, said they are committed to working together with regulators around the world to achieve a “safe, transparent and consumer-focused implementation of the Libra project”, adding that “We recognise that blockchain is an emerging technology, and that policymakers must carefully consider how its applications fit into their financial system policies.” Blockchain is the technology that underpins cryptocurrencies.

Currently, the EU lacks bloc-wide specific regulation on cryptocurrency, as it was considered a relatively marginal issue until Libra’s big announcement this June, and only a tiny fraction of digital currency is ever converted into euros. Consequently, member states have developed their own stances on the matter, while some have even taken steps to regulate the technology.

EU regulators remain divided as to whether they should treat cryptocurrencies as securities, payment services, or actual currency. Nor have regulators decided whether existing rules pertaining to financial instruments should even apply to cryptocurrency at all.

However, the wide reach of US tech giants has sparked a pushback from many European countries who seek to regulate the trade, and Danish politician Margrethe Vestager, who was this week appointed the European Commission’s executive vice president for digital, while still  retaining her role as the EU’s competition commissioner, has also pursued companies like Facebook, Apple, and Google for wrongdoings like tax-dodging. Vestager has also been put in charge of revamping how the EU regulates the digital world, which includes major sway over EU policy regarding Bitcoin and cryptocurrencies.

It remains unclear if Libra will need a license to operate in the EU. A spokeswoman for the European Commission told Reuters that “with the publicly available information on Libra, it is currently not possible to say which exact EU rules would apply”.

In the meantime, smaller states like Malta have tried their hand at pioneering relevant legislation. Malta hosts the EU’s largest online gambling industry and boasts an outsize finance sector, having created its own framework to attract and regulate virtual financial operators.

Currently, Libra is in the process of applying for a payment service license in Switzerland, which is not an EU state. Regulators warn that Libra could face regulations that typically apply to banks. Bitcoin’s prices rose 200% this year as expectations for Libra and cryptocurrency in general spiked from technology companies, which drove fresh investment to both Bitcoin and Libra. Current backers of the project include Visa, MasterCard, PayPal, Lyft, and Uber, some of which may get cold feet as Libra receives greater scrutiny.

A Wake-Up Call

Libra has galvanised European banks to up their game. European Central Bank (ECB) board member Benoit Coeure credited the project with reviving a stalled effort to roll out real-time payments in the eurozone, a project called TIPS. So far, TIPS has been treated cautiously by banks, but the introduction of Libra might change things.

“We also need to step up our thinking on a central bank digital currency”, he added, referring to a so far little-known plan. This would also allow users to use electronic cash, directly deposited with the ECB without need for bank accounts or other financial intermediaries, slashing transaction costs – all of which are currently needed for processing digital payments. Libra, too, would slash intermediaries and transaction costs.

The ECB project was launched just before Libra’s this year, and getting it off the ground may well take years. Libra plans to be ready to go by 2020. In either case, banks are likely to stand opposed.


“We encourage European central banks to accelerate work on issues around possible public digital currency solutions”, Bruno Le Maire, French Minister of economy. Copyright: Alexandros Michailidis / shutterstock.com

Le Maire, who is in favour of the ECB project, wants public authorities to work on stablecoins, a public digital currency which has the advantage of being backed by the central bank, as soon as the IMF starts meeting in October, hoping it will encourage banks to reduce overall fees on international payments. “We encourage European central banks to accelerate work on issues around possible public digital currency solutions”, Le Maire said in a joint statement with his German counterpart, Olaf Scholz.

Despite the fact that Libra has failed to adequately address the bloc’s concerns, any government-backed alternative may arrive too late. Different apps and virtual trading on the dark web already have a significant impact on how virtual currencies are used and traded – a head start equivalent to the more than a decade since Bitcoin has been around.

But lawmakers have limited options, and can at most prohibit the payment of taxes using Libra. Courts could still sanction contracts that use Libra as their currency of payment. But a European state cannot prevent an American website from allowing payment in Libra, or other online out-of-state interactions.

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B. Lana Guggenheim

Lana is a freelance journalist based in New York City. She has a M.Sc. in International Conflict from the London School of Economics and Political Science. She has worked as an analyst, reporter, and editor, covering extremism, culture, economics, and democracy.

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