With apologies to T.S. Eliot: This is the way Libra launches — not with a bang, but a whimper.
It’s been more than a year in the making — with no shortage of caution and criticism by lawmakers and regulators here in the states and in Europe — but Libra, the digital currency backed by Facebook and a revolving cast of other tech firms, could debut as early as next month.
In a form quite a bit different than had originally been envisioned. As we reported, Libra may see daylight in what is being termed a “limited format.”
As for what had been envisioned and what is being delivered: The initial reports in June 2019 had sought to create, via consortium, a synthetic coin that would have been backed by a basket of fiat currencies that spanned the globe. But then … back to the drawing board, in a way, as Libra was revamped this year to include digital versions of various fiat currencies and a “digital composite” of all the Libra coins.
And, of course, as the pandemic hit, a multitude of central banks took a deep dive into the potential risks and rewards of issuing digital central bank currencies, ranging from digital dollars to euros to, well, pretty much everything.
Depending on where you stand on geopolitics, China is winning the “digital currency arms race,” with a digital yuan poised to come to retail and B2B settings sooner rather than later.
Libra? Well, it may find a crowded field in which to compete, as the newest iteration will be backed one for one by the U.S. dollar. Later on, we may see other Libra coins backing other currencies (possibly on a one-to-one basis), or composites.
That one-to-one premise has already been a hallmark of other offerings, such as the J.P. Morgan stablecoin, known as JPM Coin, geared toward B2B. In an interview with Karen Webster, Umar Farooq, CEO of J.P. Morgan’s Onyx, said that peer-to-peer (P2P) private blockchain networks can help streamline information flows tied to cross-border payments. He said they could also remove the complexities tied to legacy systems as trillions of dollars flow across the globe between corporates.
In fact, J.P. Morgan now has its own unit dedicated to blockchain and digital currencies.
For Libra, of course, the goalposts could be moved again, as a single digital coin backed by the dollar must still get approval from the Financial Market Supervisory Authority, a Swiss-based Libra association.
And Europe, it seems, views the stablecoin landscape — nascent as it is — with some caution, especially those offerings backed by companies rather than central banks.
And, interestingly, there are signs in Europe that Big Tech (including Facebook) might do well to be leery of the big stick of regulation. There are some plain-as-day statements coming from the Continent that navigating the ins and outs of digital currency issuance might be akin to whitewater rafting.
As noted late last month, European Central Bank President Christine Legarde has set down in black and white just what she thinks of cryptos fashioned and offered by private firms. In an editorial, she said cryptos cannot be relied on to maintain “a stable value: they are highly volatile, illiquid and speculative, and so do not fulfil all the functions of money.”
As for those monetary functions, Lagarde wrote in an op-ed entitled “The Future of Money: Innovating While Retaining Trust” that “the functions of money — as a means of exchange, a unit of account and a store of value — have remained the same for centuries.”
Stablecoins, she said, have tried to solve the crypto “lack of stability and trust” by pegging values to fiat. But stablecoins, she contended, pose “serious risks.” The risks may be existential in nature, threatening monetary sovereignty.
“If the issuer cannot guarantee a fixed value or if they are perceived as being incapable of absorbing losses, a run could occur. Additionally, using stablecoins as a store of value could trigger a large shift of bank deposits to stablecoins, which may have an impact on banks’ operations and the transmission of monetary policy,” Legarde wrote.
Big Tech-backed stablecoins may — by virtue of the platform effect — pose a risk to competitiveness and technological autonomy in Europe, she said.
“A properly designed digital euro would create synergies with the payments industry and enable the private sector to build new businesses based on digital euro-related services. A digital euro would also be an emblem of the ongoing process of European integration and ultimately help to unify Europe’s digital economies,” Lagarde added.
But a digital euro, she said, could represent a risk-free, streamlined way to pay. The U.S. Federal Reserve, of course, has been making inroads to its own digital dollar, perhaps as a way to get disbursements (such as stimulus payments) to individuals and families with haste.
So, the writing might be on the wall: Private efforts to bring stablecoins to market are bad. Central bank efforts are good.
Stop Before They Start?Â
In Europe, especially, the groundwork is being laid to prevent Big Tech — selectively — from bringing new services or products to consumers and corporate clients.
That’s because the Digital Services Act and the Digital Markets Act looms and will give the EU leeway to ban services piecemeal — or, perhaps, companies themselves — from operating across the 27-member union if certain rules and regulations are not followed. The draft rules are set to be unveiled as early as this Wednesday, Dec. 2.
No easy path lies ahead for Facebook or others that want to promote digital stablecoins, as they face competition from central banks that might make digital currency all about fiat. By fiat.