Frankfurt / Denver It was a nice plan. The Libra Association wanted to go into spring with a new, modified concept paper. “Our mission is a simple global payment system that supports billions of people”, in short: building a “more inclusive and innovative financial world”. That was the announcement a few days ago. The project initiated by the internet giant Facebook is scheduled to start at the end of 2020.
Global, innovative and for the benefit of mankind: Libra’s new concept paper, the “Whitepaper 2.0”, is bristling with pathos in the best Silicon Valley manner. And yet it represents a kind of peace offer from the Libra partners, along with Facebook, for example, the travel agent Uber and the streaming service Spotify. The pledge is that your planned private currency will be created on the basis of a “collaborative dialogue” with all relevant actors.
The message has been heard around the world. Alone, the recording could have been more cordial. Despite all the modifications, US observers fear “a parallel world to the existing financial service providers”. German politicians warn of a “powerful shadow bank” under Facebook curate. And the advance is also viewed critically by scientists.
The question of whether the Libra launch will succeed on the second attempt or whether global resistance will finally bring the project down is completely open. It is even possible that the partners have made new enemies with the latest modifications. However, giving up is not an option for Facebook. The competition is already in the starting blocks.
Libra board praises new approach
“We still have work to do. But we are in a much better position than last year, ”explains the Libra Association’s operational board, Bertrand Perez, in an interview with the Handelsblatt. “We now have a strong answer to many questions and concerns of the supervisors.” And indeed: The makers have approached their critics, at least in part.
Prevention of abuse has been strengthened. “The Libra network will work better than the traditional financial system” in preventing money laundering, terrorist financing or hacking, Perez promises. For this, the network based on the decentralized blockchain database technology will start as a closed system. Further actors are only to be added later.
“We don’t reinvent the wheel for its own sake,” said Perez. “Our goal is to simplify global transactions. Access to the Internet is a basic raw material for everyone today. It is not yet to receive and send money. We’re working on it.”
Above all, one change is to make Libra’s approval by the supervisors easier: The controversial basket of collateral, which was supposed to form the basis for the Libra coin, has been deleted.
Instead, national currencies should now be digitized step by step in a one-to-one ratio. “In addition to the Libra coin, which is based on a basket of currencies and government bonds, we want to offer stable-value coins for individual currencies,” explains Perez, “for example a Libra euro or Libra dollar.”
Libra is no longer a risk to state sovereignty. “We don’t create new currencies,” says Perez. “Behind every Libra dollar that circulates is a real dollar as security.” Perez does not want to say goodbye entirely to the idea of the art coin based on a currency basket: Such a “multi-currency coin” could allow transfers to those countries, in which Libra has not yet digitized the national currency.
The Libra Association, based in Geneva, has already submitted its first application for state approval – to the Swiss financial regulator Finma. It wants to analyze the application openly and emphasizes that it is in close contact with more than 20 supervisory authorities and national banks worldwide. The calculators could do the trick: Libra would start flexibly where there is little political resistance – without immediately spoiling a large number of states.
Criticism from the USA and Germany
It is rather unlikely that the Libra dollar will start. Again, there is loud criticism of the project from the USA: “There are still too many questions unanswered why Facebook is developing a cryptocurrency and how it will influence the global economy and consumers,” said the democratic financial expert in the House of Representatives, Sylvia Garcia.
In an open letter to the parliament, the Americans for Financial Reform think tank called for stricter laws for payment services that operate outside of the regulated big banks. Otherwise Facebook could build “a parallel world to the existing financial service providers”.
As part of the Libra Association, the group would build the infrastructure on the one hand, and on the other hand store the coins in digital wallets – and thus get too much power with its more than two billion users. The example of Tencent from China has shown how much influence companies have on pricing that connect payment services with social networks.
Criticism is also growing in Germany. Federal Finance Minister Olaf Scholz (SPD) told the Handelsblatt: “We will not allow a private global currency. The currency monopoly must remain in the hands of the states. ”
Scholz is currently examining the extent to which the new Libra plan takes into account the previous concerns of the EU states, which they had formulated in a joint declaration on December 5. According to the Federal Ministry of Finance, the assessment also depends on the specific design of the business model. This leaves the new concept paper open.
Gerhard Schick, head of the citizens’ movement Finanzwende, warns that some have declared Libra dead too soon. “Anyone who knows Facebook knows that this company won’t let up on something like that so quickly,” believes Schick.
“If Libra prevails, this will go hand in hand with an increase in data and power for Facebook, although the company is already too powerful today. In our view, central problems remain, which is why we continue to reject the project. ”
Thomas Heilmann, blockchain expert of the CDU / CSU parliamentary group and one of the fathers of the blockchain strategy of the grand coalition, fears a monopolization of digital money and thus a threat to financial stability – for example, if Libra also prevails as a technical standard for stablecoins that are deposited with national currencies.
However, Heilmann does not believe “that we can prevent private stablecoins such as Facebook’s Libra in the long run.” If necessary, the group would simply buy a European bank and meet all requirements.
Danyal Bayaz, financial expert of the Greens parliamentary group, is particularly disturbed by the unclear data protection in the new Libra concept. The makers have responded to some criticism: “However, this does not clear up the core criticism. Nobody can guarantee that Facebook will not use Libra’s data after all, ”said Bayaz. The state’s monopoly on money creation would also continue to be questioned.
The private banking association BdB is afraid of overpowering competition: “If the new proposals were implemented, the balance of power among payment service providers in Europe could shift massively,” he said. “Europe and Germany must not continue to depend on American or Chinese providers for digital payment systems for their economy.”
Better technology, problematic regulation
The question of the consequences for “digital sovereignty” is not new. US Treasury Secretary Stephen Mnuchin had already described Libra as a threat to national security in 2019. Facebook boss Mark Zuckerberg had to swear under oath that one would only start after the green light of the regulators in the USA and other countries.
The question of why Facebook and its partners need their own digital currency is still open. Critics refer to the example of PayPal. The US group has been processing virtual payments based on real currencies since 1998. Is not this enough?
Libra board member and ex-Paypal manager Perez explains that the blockchain is a more modern technology than the financial industry systems, some of which are 50 years old. That makes transactions faster and cheaper.
Perez admits that fees may also apply to Libra: “It depends on the conditions of the banks.” Transactions from one digital wallet to the other are free.
To satisfy regulators around the world, Libra apparently relies on the well-networked Swiss authority Finma. It is now up to this to gather all relevant authorities behind.
“Finma is one of the most renowned regulators. It is open to bringing others to the table, which will help wider acceptance of Libra, ”says Perez. You are currently clarifying whether you also need an EU license.
Volker Brühl, Managing Director of the Center for Financial Studies at Frankfurt University in Frankfurt, studied the new Libra concept. “Facebook and its partners have made every effort to address compliance, customer identification and anti-money laundering issues,” he concludes.
But that doesn’t make the project unproblematic. “There is also a risk that Libra will affect the effectiveness of central bank monetary policy measures,” warns Brühl. The additional introduction of stable-value coins based on dollars or euros does not solve the problem either.
The professor believes that the changed Libra concept brings a new dynamic to the discussion about digital central bank money in the euro zone: “The ECB has to position itself clearly here.” Bring offensive and defend the state monopoly on money.
E-euro as a public alternative
Federal Finance Minister Scholz is also putting pressure on this issue. “It is important that the euro zone becomes quickly competitive with digital payment methods. We have to take seriously the new Libra plans and China’s announcement to try digital central bank money, ”he says. Scholz relies on “innovative European responses to these initiatives.” A strong and sovereign Europe must be able to act independently here.
The CDU / CSU parliamentary group is already demanding a digital euro. And the green finance expert Bayaz wants to forestall Libra: on this basis, “private providers could then process payment services”. According to CDU politician Heilmann, the e-euro could be issued by the commercial banks. The left-wing finance expert Fabio De Masi even calls for direct “citizen accounts” with the ECB.
This is the only way from the point of view of Libra critics to prevent US corporations like Facebook or Chinese providers like Ali Pay from becoming powerful “shadow banks”. Because more players are in the starting blocks. For example, according to insiders, Amazon has been tinkering with its own crypto plans for years. The online giant has already secured the address amazoncryptocurrencies.com. Beijing is also driving the development of a national digital currency. The first practical tests for the “E-Yuan” are running.
The Europeans are slower on the road, but also have the issue on the screen. The Bundesbank has been researching blockchain technology and its limitations for years. And the ECB recently put together its own team that is working on ideas for an e-euro.
Whatever solution wins the race: Facebook and Co. don’t want to be put off by it. The partners are also prepared for state digital currencies: According to Perez, the new Libra version should be sufficiently flexible.
“You have to understand that we primarily offer a payment network. If the ECB provided an e-euro, we could simply integrate it into our network. ”In this case, the association would not have to hold any reserves. “That would even simplify our project,” says Perez.
More: Facebook is responding to criticism with a new Libra concept, experts fear the rise to the “powerful shadow bank”.