News & Views - Savantor

Sometimes the tide cannot be turned

Monday, 16 September 2019

The announcement in June by Facebook about the proposed new Libra currency unleashed a huge amount of reaction to the project.

Whilst much of it has not necessarily been favourable, it is understandable that there are serious concerns relating to the security and the regulation of such a currency, particularly in light of the reputation that Facebook has gained in relation to online security and adequate regulatory controls.

As it is a proposal which has the backing and support from many significant bodies in the payments industry – Visa, Mastercard, Paypal, Stripe, eBay and Vodafone to name but a few - perhaps the proposed digital currency should be regarded as a serious contender and not as an aberration that needs to be kept out of the system at any cost. Serious and critical investigation into and analysis of the project will help ensure that if it does progress, serious flaws in its design and method of operation can be addressed and mitigated.

Indeed the Committee on Payments and Market Infrastructure from the Bank for International Settlements, which comprises central bank chiefs from the world's biggest economies, has been questioning Facebook in detail about the scope and design of the proposed cryptocurrency Libra, to assuage mounting concerns over the threat it poses to financial stability and monetary sovereignty and to ensure that high standards of regulatory approval are applied to prevent serious security risks.

However, there have been recent media reports that some European countries, in particular France, are reacting so strongly against it that the French Finance Minister has stated “the monetary sovereignty of states is under threat.”

Whilst Libra and other digital currencies certainly have implications upon currencies in global terms, refusing to have anything to do with them will not prevent their development from being pursued. Perhaps a more productive approach might be, instead of trying to deny their future existence in a ‘King Canute’ fashion, to be involved so that any concerns and issues can be addressed.

Although many national entities have perceived development of the Libra as a threat in various contexts, not all reactions to it have been so hostile. The Bank of England governor has said that it could "substantially improve financial inclusion and dramatically lower the costs of domestic and cross border payments," whilst also proposing that the Bank could open up access to its balance sheet to new payment providers. His statement that "The Bank of England approaches Libra with an open mind but not an open door," seems to be a constructive approach to adopt.

In the ever-changing world of payments, how digital currencies evolve and integrate into the payments market going forward will be a fascinating topic to follow.

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