How 10 Countries Respond to Facebook’s Libra Cryptocurrency
July 11th, 2019
A growing number of governments have responded to Facebook’s cryptocurrency plans including China, France, India, Japan, South Korea, Russia, Singapore, Thailand, the U.K., and the U.S. Several intergovernmental organizations have also weighed in such as the European Central Bank and the Bank of International Settlements.
Facebook’s Libra Project
Facebook unveiled its plans last month for newly formed subsidiary Calibra which aims to provide financial services via the Libra network. “The first product Calibra will introduce is a digital wallet for Libra, a new global currency powered by blockchain technology. The wallet will be available in Messenger, Whatsapp and as a standalone app — and we expect to launch in 2020,” the social media giant announced. Calibra has been providing information to central banks worldwide regarding its Libra plans to create understanding and exchange information, according to Calibra CEO David Marcus.
Regarding which countries Calibra will be available in, a Facebook spokesperson told news.Bitcoin.com on July 9 that “Calibra won’t be available in U.S.-sanctioned countries or countries that ban cryptocurrencies,” elaborating:
The Libra blockchain will be global. It will be up to custodial wallet providers to determine where they will and will not operate.
Lawmakers in the U.S. have been actively taking initiatives in response to Facebook’s Libra announcement. During his semi-annual testimony on monetary policy before the House of Representatives Financial Services Committee on July 10, Federal Reserve Chairman Jerome Powell said:
Libra raises many serious concerns regarding privacy, money laundering, consumer protection and financial stability.
He added, “I don’t think the project can go forward” without addressing those concerns, noting that the Fed has established a working group to follow the project and is coordinating with other central banks across the globe.
“Facebook has a couple billion-plus users, so I think you have for the first time the possibility of very broad adoption” of cryptocurrency, the Fed chair continued, emphasizing that any problems that could emerge through Libra “would arise to systemically important levels just because of the mere size of Facebook.”
Five Democratic lawmakers, including Rep. Maxine Waters, chairwoman of the House Committee on Financial Services, sent a letter to Facebook executives on July 2 “requesting an immediate moratorium on the implementation of Facebook’s proposed cryptocurrency and digital wallet,” the press release posted on the government’s website details. The announcement reads:
Because Facebook is already in the hands of over a quarter of the world’s population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action.
The letter continues: “During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so risks a new Swiss-based financial system that is too big to fail.”
The U.S. Senate Banking Committee is holding a hearing on Libra on July 16, followed by a House Financial Services Committee hearing the next day. Calibra’s Marcus is scheduled to testify before both committees. According to him, the subsidiary has applied for state money transmitter licenses and is registered with the U.S. Treasury Department’s Financial Crimes Enforcement Network.
In addition, more than 30 groups including the Consumer Federation of America, the Economic Policy Institute, and the U.S. PIRG have asked lawmakers to intervene with the project. “We call on Congress and regulators to impose a moratorium on Facebook’s Libra and related plans until the profound questions raised by the proposal are addressed,” their July 2 letter reads.
The People’s Bank of China (PBOC) is paying “high attention” to Libra, said Wang Xin, director of the central bank’s research bureau, South China Morning Post reported on July 8. According to the news outlet, the director warned that Libra could have a major impact on monetary policy and financial stability, elaborating:
Facebook’s plans to create its own cryptocurrency have forced China’s central bank into stepping up research into creating its own digital currency as Libra could potentially pose a challenge to Chinese cross-border payments, monetary policy and even financial sovereignty.
Mu Changchun, deputy director of the PBOC’s payments department, said that Libra “must be put under the oversight of monetary authorities,” Bloomberg reported the same day. He told the publication that, as a convertible cryptocurrency or a type of stablecoin, Libra “will not be sustainable without the support and supervision of central banks,” asserting:
In the longer term, the yuan will be damaged by Libra if it’s not convertible.
He further revealed that the central bank’s research team tested Libra’s code and found that it’s “still in an initial stage and the quality of the code isn’t stable,” and there are also questions such as whether Libra would use blockchain technology, the publication conveyed.
India is currently deliberating on the regulatory framework for cryptocurrency, which was drafted by an interministerial committee headed by Finance Secretary and Secretary of Economic Affairs Subhash Chandra Garg. Bloomberg reported him as saying in an interview on July 6:
Design of the Facebook currency has not been fully explained … But whatever it is, it would be a private cryptocurrency and that’s not something we have been comfortable with.
The Indian government has not announced the crypto regulation, which has led to rumors such as a draft bill to ban cryptocurrencies. Further, the central bank, the Reserve Bank of India (RBI), has prohibited regulated financial institutions from providing services to crypto businesses since September last year. The country’s supreme court is scheduled to hear a number of writ petitions against the RBI ban on July 23.
In the meantime, the Facebook spokesperson confirmed to news.Bitcoin.com on July 9:
There are no plans to offer Calibra in India.
The Monetary Authority of Singapore (MAS) published its answers to questions from Parliament regarding Libra on July 8. “It is in the early stages of development, with a number of issues to be worked out around its features, use cases, and governance arrangements,” the central bank wrote. “Like other regulators around the world, MAS will make an informed assessment of the potential benefits and risks of Libra once these details become clear.”
In Singapore, the Payment Services Act (PS Act) covers cryptocurrencies, as well as e-money, and domestic and cross-border fund transfers. The MAS clarified:
Depending on its nature, Libra may be regulated under the PS Act, and be subject to requirements on anti-money laundering and countering the financing of terrorism imposed under the MAS Act.
“As for personal data privacy, all entities operating in Singapore that collect personal data are subject to the requirements of the Personal Data Protection Act,” the central bank continued. “MAS will continue to engage Facebook on its plans for Libra, and consider appropriate regulatory responses once they are clear.”
Facebook has requested a meeting with the Bank of Thailand (BOT) to seek authorization from the central bank to integrate Libra into the Thai financial system, according to Siritida Panomwon, Assistant Governor for Payment Systems Policy and Financial Technology Group at the BOT. Thailand has approximately 50 million registered Facebook users. At press time, the meeting has yet to be confirmed.
Panomwon told the press on July 5 that a committee has been established to examine Libra. It comprises experts from the central bank’s foreign exchange, payments and legal teams, Xinhua reported. She was quoted as saying:
The BOT will study Facebook’s whitepaper … because consumer benefits and risks incurred from the digital currency are the central bank’s main focus.
Other than security concerns, the BOT will look into the stability of Libra’s value, currency model mechanism and public protection against fraud, she revealed. The bank has also set up a working group to study Libra, and is in discussion with the country’s Securities and Exchange Commission (SEC) and other related parties on the subject.
On July 8, SEC Assistant Secretary-General Praoporn Senanarong confirmed that the commission is preparing to discuss guidelines for Libra with the BOT since it is both an asset and a medium of exchange. She clarified that Libra is not under the supervision of the SEC based on the country’s current regulation for digital currencies.
The Bank of Japan (BOJ) is concerned that “the difficult-to-regulate coin will pose a risk to financial systems while exploiting their existing structure at no cost,” Nikkei reported July 3. BOJ Governor Haruhiko Kuroda told reporters that he intends to “keep careful watch” for whether cryptocurrencies would gain acceptance as a method of payment, as well as how they might affect financial and payment systems.
BOJ Deputy Governor Masayoshi Amamiya explained on July 5 that digital platform operators such as Facebook must comply with regulations on money laundering and risk management, Reuters reported. Noting that Facebook’s crypto plan is still sketchy, he urged central banks to be vigilant to the impact such moves could have on their country’s banking and settlement systems, emphasizing:
As for Libra, we must bear in mind that the potential global user-base could be enormous.
Meanwhile, Japan’s top financial regulator overseeing crypto exchange operators, the Financial Services Agency (FSA), is leaning on the view that Libra “is likely not to be a crypto asset,” Nikkei reported. The FSA previously told news.Bitcoin.com that under current regulations, stablecoins are not considered cryptocurrency.
South Korea’s top financial regulator, the Financial Services Commission (FSC), published a report on “Understanding Libra and Related Trends” on July 8, Yonhap reported. The regulator explained:
We have seen that Libra is more likely to be commercialized than existing virtual currencies … Libra will have a big impact on the existing financial system, banking industry and financial consumers.
The report raises concerns that much of the detail about Libra is still unknown and there is a possibility that personal information will be leaked. Moreover, it notes that “If bank control is not achieved, Libra may turn into a money laundering solution.”
Cryptocurrency is currently unregulated in Russia, but the country plans to adopt the bill “On digital financial assets” which will regulate the use of cryptocurrencies in the country. Deputy Finance Minister Alexei Moiseev said that Russia will not have a separate regulation for Libra, Interfax reported on July 1. He described:
There will be rules for all cryptocurrencies that are being traded.
“That is, it will be possible to buy, sell, store it, but it cannot be used, in fact,” Moiseev was quoted as saying. “No one is going to ban. A large number of businesses ask when it will finally be possible to legally conduct an ICO transparently, this will definitely be regulated, permitted, and that’s all,” he added.
The UK’s Financial Conduct Authority (FCA) and other regulators have met Facebook representatives to discuss the plans for Libra. Christopher Woolard, the executive director of strategy and competition at the FCA, has highlighted a series of potential issues with Libra, from consumer protection and privacy concerns to financial market stability, the Guardian reported. Woolard asserted:
Its size and scale will pose questions for society and government more generally about what is acceptable and desirable in this space.
He clarified that the regulator would look at whether Libra and other crypto assets functioned in similar ways to other regulated investment vehicles, adding that “The issues raised here require deep thought and detail.”
Commenting on Libra at a meeting in Portugal, Bank of England Governor Mark Carney said that “Anything that works in this world will become instantly systemic and will have to be subject to the highest standards of regulation,” Bloomberg reported.
France and the G7
France’s Finance Minister Bruno Le Maire said Libra would be fine if its use is limited to transactions, emphasizing that Facebook shouldn’t be allowed to create a sovereign currency, Reuters reported.
France currently holds the rotating presidency of the G7. The country’s central bank governor, Francois Villeroy de Galhau, said on June 21 that a G7 task force will be created to study how central banks ensure cryptocurrencies like Facebook’s Libra are governed by regulations ranging from money-laundering laws to consumer protection rules. It would be led by European Central Bank board member Benoit Coeure. Villeroy told finance industry officials:
We want to combine being open to innovation with firmness on regulation. This is in everyone’s interest.
ECB and BIS
Several intergovernmental organizations have also weighed in on Libra. European Central Bank Executive Board member Benoit Coeure said on July 7 that “Financial regulators must act fast to prepare for the push by U.S. tech giants such as Facebook Inc. into the financial system,” elaborating:
It’s out of the question to allow them to develop in a regulatory void for their financial service activities, because it’s just too dangerous … We have to move more quickly than we’ve been able to do up until now.
Coeure believes that the development of digital currencies is exposing deficiencies in existing regulation and the failure of the banking system to adopt new technology. He was quoted by Bloomberg as saying, “All these projects are a rather useful wake-up call for regulators and public authorities, as they encourage us to raise a number of questions and might make us improve the way we do things.”
Meanwhile, the Bank for International Settlements, the Basel-based financial institution owned by 60 central banks, said last month that “Politicians need to quickly coordinate regulatory responses to new risks as Facebook and other tech firms move into finance.”