France and Germany finance prime ministers jointly said on the 13th of September that the Libra cryptocurrency, which Facebook is actively lobbying on in Europe, is a threat to the financial stability of the whole EU region.
Virtual currencies pose a risk to consumers, financial stability and even to the “monetary sovereignty” of European states, French Finance Minister Bruno Le Maire and his German counterpart Olaf Scholz said at a meeting of EU finance ministers in Helsinki.
Bruno would like to put on a table a proposal on creating a public digital currency on the next IMF meeting that will take place in Washington DC, October 14-20.
Why European Central Bank Doesn’t like Libra?
The European Central Bank is not just concerned about this, because for 20 years they built a single European Economic Area (SEPA) with a single currency, which ultimately put the euro in second place immediately after the dollar in the international market.
#1. Government Monetary Sovereignty is at stake
Simply put, Libra does not offer a decentralized digital currency, but only plans a gradual transition to such a governance system in a distant future, after the transition to Proof-of-Stake consensus algorithm and the transfer of 20% of the Libra Foundation votes to validating nodes.
“When it comes to money, centralisation is only a virtue in the right institutional environment, which is that of a sovereign entity and a central issuance authority. Conglomerates of corporate entities, on the other hand, are only accountable to their shareholders and members. They have privileged access to private data that they can abusively monetise. And they have complete control over the currency distribution network. They can hardly be seen as repositories of public trust or legitimate issuers of instruments with the attributes of money.”
Yves Mersch, a member of the Executive Board of the ECB
From the European regulators’ point of view, the Libra Foundation hasn’t got far from centralized emission at the state level. Even worse, private companies are concerned only about their stake-holders income.
#2. Anti-monopoly concerns
Yves Mersch, a member of the Executive Board of the ECB, sees the ecosystem of Libra as the cartel-like organization. According to him, the issue of a currency controlled by 28 members of the Libra Association raises questions.
He claims that private companies that are part of the non-profit association will certainly earn seigniorage (a profit from coin emission minus the cost of issuance) and inevitably monetize private information about Libra users for the benefit of the owners and the board in their companies. In this sense, Yves advocates a centralized issue of state currencies, citing the Knapp’s state theory of money and in the Chartalist school of economic thought.
The ECB is concerned that Facebook will be involved in the development, issue and subsequent control of Libra.
… the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from their handling of personal data on their social media platform.
Yves Mersch, Executive Director of ECB
Recall that last year, Mark Zuckerberg had to answer uncomfortable questions before the US Senate after the scandal with the leak of personal data of more than 50 million Facebook user profiles to Cambridge Analytica, which helped Donald Trump in the 2016 presidential election.
Despite the importance of all three reasons, the ECB European Commission sent a questionnaire with questions to various parties involved in the Libra project, where it emphasized the importance of the relative use of user data.
“The Commission is in particular concerned about the possible competition restrictions that may result from the Association, especially with regard to information that will be exchanged and the use of consumer data,” the questionnaire said.
Libra Foundation Reaction
At the moment, no official response has been received from Libra or their representatives. Previously, Facebook hired a Washington-based lobbying firm to protect Libra in response to negative feedback from regulators around the world.
Libra Foundation partners are quite restrained in their statements, for example:
“Obviously, I think there is still a lot of work to be done before we get to the point where it becomes more than an exciting idea.”
Gabriel Rabinovich, PayPal Investor Relations Vice President
Meanwhile, the U.S. Senate hasn’t approved the stablecoin either as senators concerned about how the customers’ data will be collected and processed inside and outside of the Libra network.
Donald Trump’s opinion on the subject:
Other countries are also negative towards Libra and similar cryptocurrency projects. Still, the global stablecoin game continues and a Geneva-based entity called the Libra Foundation plans to launch the Libra cryptocurrency in the first quarter of 2020.