/Monetary establishment panic about Libra is five months in and rising

Monetary establishment panic about Libra is five months in and rising

For months prior to June 18, 2019, the world’s cryptocurrency blog sites — CoinDesk, Cointelegraph, Blockonomi and CryptocurrencyWire — buzzed with speculation, leaks and crypto-news about Facebook Inc.’s secret plan to launch a digital currency.

Few mainstream media outlets tapped into the speculation about the global tech giant’s plan. More importantly, perhaps, was the absence of comment or analysis on the possibility of viable and stable private currencies from the world’s monetary institutions such as the central banks, the International Monetary Fund, the Bank for International Settlements (BIS) and the World Bank.

Even the concept of a private currency, in the form of stablecoins, had rarely been even mentioned by the controllers and regulators of the global currency system.

For instance, a search of BIS’s web site produced no references to stablecoins until after Facebook’s formal June 18 announcement of its plan to launch Libra by 2020. At the Bank of England, stablecoins were generally dismissed as not so stable. “Time will tell,” a Bank of England blog post said in early 2019, “but it seems unlikely that these algorithmic stablecoins will be replacing national currencies any time soon.”

The official atmosphere of aloof dismissiveness evaporated in June. Here is a brief list of stablecoin commentary and analysis that blew through the official and unofficial global currency establishment after Facebook announced Libra.

June 30, 2019: The BIS issued an annual report containing a 20-page section on Big Tech in financial services. It noted Facebook’s Libra and others offered benefits and said there is a need to “level the playing field” with uncompetitive banks.

July 3, 2019: Economists Markus Brunnermmeier and Harold James said Libra shows that private networks may be created to give access to new and specific units of account to people in many countries.

Technology is reviving the 20th century dream of a global monetary system free of the disruptions caused by economic nationalism

Economist Harold James

July 3, 2019: “Technology is reviving the 20th century dream of a global monetary system free of the disruptions caused by economic nationalism,” economist Harold James wrote.

July 11, 2019: Queen’s University economist Thorsten Koeppl commented that Facebook’s Libra shows it is time for central banks to step up.

July 15, 2019:The Rise of Digital Money, part of a new IMF series called Fintech Notes, detailed how technology companies are stepping up their competition with large banks and credit card companies.

July 18, 2019: G7 finance ministers and central bankers meeting in Chantilly, France, said stablecoins and other various new products currently being developed, including projects with global and potentially systemic footprints such as Libra, raise serious regulatory and systemic concerns. Promises a report later in the year.

August 2019: Three economists said the ongoing digital revolution may lead to a radical departure from the traditional model of monetary exchange, which could include unbundling the separate roles of money, thereby creating fiercer competition among specialized currencies.

Aug. 11, 2019: A China official said its blockchain digital currency is ready to go.

Bank of England Governor Mark Carney said the existing global payments system suffers from “deficiencies” and “malign neglect.”

Simon Dawson/Bloomberg

Aug. 23, 2019: Bank of England Governor Mark Carney said the existing global payments system suffers from “deficiencies” and “malign neglect.” Global regulators and central banks should look at possibly establishing a “hegemonic” stablecoin.

Sept. 4, 2019: U.S. economist Barry Eichengreen said too much is unknown about Facebook’s Libra plan.

Sept. 12, 2019: In the wake of Libra, “We may be witnessing a seismic shift in the monetary system,” wrote Dirk Niepelt, an economics professor at the University of Bern.

Sept. 12, 2019: France’s finance minister said, “We cannot authorize the development of Libra on European soil.”

Sept. 19, 2019: CNBC reported on why regulators and politicians — from the European Central Bank to the French government to Donald Trump — are so worried about Libra.

We cannot authorize the development of Libra on European soil

France’s finance minister

September 2019: Canadian economists Jonathan Chiu and Thorsten Koeppl issued a Bank of Canada paper on cryptocurrencies, but do not reference stablecoins.

Oct. 2, 2019: Bank of England Financial Policy Summary highlighted Libra as a potential systemically important payments system and encourages the development of alternative solutions to improve the efficiency of domestic and cross-border payments.

Oct. 15, 2019: Bank of England governor “defends” Libra plan.

Oct. 15, 2019: Deputy governor of the Bank of France delivered a speech and said a “coordinated international approach is necessary to be effective in addressing the issues raised by crypto-assets.”

Oct. 17, 2019: Facebook’s Libra is a threat to national sovereignty, France’s Finance Minister Bruno Le Maire wrote.

Oct. 18, 2019: Bank of Canada deputy governor Timothy Lane said Libra is “potentially” a new digital currency that could co-exist with central bank money.

Mark Zuckerberg testitified at Senatre hearings on Libra.

Chip Somodevilla/Getty Images

Oct. 23, 2019: Facebook chief executive Mark Zuckerberg appeared before the U.S. House Committee on Financial Services.

Oct. 23, 2019: House committee chair Maxine Waters suggested Facebook should be broken up rather than be allowed to expand into currencies.

October 2019: Report commissioned in July by G7 finance ministers warns that Libra is a currency threat on myriad fronts. https://www.bis.org/cpmi/publ/d187.pdf

Nov. 6, 2019: News report indicated the EU is considering launching its own digital currency to rival Libra.

Nov. 8, 2019: U.S. Federal Trade official said U.S. Federal Reserve should launch FedNow, a digital competitor to Libra.

Nov. 15, 2019: Despite criticisms, Libra claims “Five months and growing strong.”

Financial Post

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