On Thursday afternoon in German time, the “Libra Association” published the second version of its so-called white paper, the concept of the planned virtual currency. In it, the union says goodbye to some central building blocks of the original idea and responds at least to some extent to the harsh criticism of the plans presented in 2019.
For example, the security of the Libra payment system has been strengthened “by a solid framework for regulatory compliance and risk management”. This should effectively combat money laundering, terrorist financing and other illegal activities.
As a precondition, the politically particularly controversial basket of government bonds and conventional so-called fiat currencies, which should actually form the basis for Libra, has been deleted. “While our vision has always been that the Libra network complements fiat currencies and does not compete with them, there was a central fear,” the new white paper says: that Libra could have the potential “to monetary sovereignty and monetary policy affect ”if it were widespread.
In order to alleviate these concerns, the basic idea is now being expanded “by offering stablecoins on certain currencies in addition to Libra”. You want to start with a Libra dollar, Libra euro or Libra pound.
Stablecoins are cryptocurrencies with stable value in the industry. In contrast to the strongly fluctuating free digital currencies such as the forefather Bitcoin, their rate is more stable. This is possible because the coins are linked to real-world investments – for example, to a government currency, to a commodity such as gold or to secure government bonds.
The best known stablecoin to date is called Tether: the coin is said to be linked 1: 1 to the dollar, but is controversial in financial circles. Facebook’s Libra project is of a completely different caliber. If the group and its partners succeed in virtually depicting (tokenizing) stable government currencies, they could be quickly used in payment transactions.
Is the Libra Euro coming in 2020?
The makers obviously have a calculation: Now that the “Libra Association” is working piece by piece, state approval should become easier. Instead of directly rolling out an art coin based on a currency basket, Libra coins apparently 1: 1 linked to dollars, euros and Co should make the beginning. So Facebook and its partners Libra could start flexibly where there is the least political resistance – without having to deal with a large number of countries.
Observers believe the plan is promising. “Libra will become a generic platform for all possible currencies,” says Philipp Sandner, head of the Blockchain Center at the Frankfurt School of Finance. The professor expects the euro to be the first to be digitally mapped: “Libra is doing intensive lobbying with the European Commission, and with the new thrust there are now clear regulatory regimes that Libra can meet precisely.”
Sandner believes that the creators have deliberately opted for the latter route: “Analogous to Paypal, Libra could certainly get the corresponding licenses for it.” His optimistic forecast: “This year we will have the digitally programmable euro, based on Libra.”
In fact, the “Libra Association” based in Geneva, Switzerland, has already submitted its first application for state approval – to the Swiss financial market regulator Finma, as announced on Thursday afternoon.
The financial regulator now wants to “analyze the application in detail”. The application is not yet complete and differs from the original plans, the authority said. The supervisors want to make additional demands for additional risks, such as bank-like services. The agency did not specify how long the process should last.
When the Libra plans became public last summer, Switzerland reacted positively: It seemed a great honor that the Libra Foundation chose its headquarters in Geneva – after all, politicians had declared the goal of becoming a “crypto-nation” from the Alpine country do. But in the face of international pressure, the euphoria quickly evaporated.
Political criticism continues
For example, Finance Minister Ueli Maurer rejected the Libra plans last December: “Switzerland cannot approve Libra in its current form,” said Maurer. The background is the pressure from international central banks, who were disturbed by the underlying currency of the digital currency with a basket of real currencies.
Finma emphasized on Thursday that “the planned international scope of the project makes an internationally coordinated approach indispensable.” There is close contact with more than 20 supervisory authorities and national banks worldwide. When asked by Handelsblatt, a Finma spokesman emphasized that the approval process with the current license application is only at the beginning – and the outcome is open. “The end is not prejudiced with today’s decision,” said the spokesman. First, the agency’s “Libra Association” had to explain exactly what plans it was pursuing.
Criticism of the new plan comes from Berlin. “Facebook will try to link Libra to the euro at a rate of one to one and take advantage of the uncertainty of the corona crisis,” said Fabio De Masi, a left-wing parliamentary group’s financial expert. “Credit creation would be restricted in this way, but Facebook’s data power remains a systemic risk for our money system.”
US corporations such as Facebook and Apple or Chinese providers such as Ali Pay are threatening to become “powerful shadow banks” soon, De Masi warns. “To prevent this, we need a state-guaranteed e-currency to supplement the cash with citizen accounts at the ECB.”
In the crypto industry, it was noted with interest that Libra’s announcement coincided with related news from Beijing almost simultaneously. It was only on Wednesday that the Chinese central bank gave selected domestic credit institutions the green light for experiments with their planned digital currency, as the Bloomberg news agency reported.
China is getting closer to the goal of issuing the first state-controlled cryptocurrency. Beijing has been working feverishly on a national alternative since Libra’s announcement by Facebook and its partners, including Uber transportation agency and Spotify streaming service. Officials of the European Central Bank (ECB) are also increasingly concerned with the subject.
More: Financial guards call for uniform rules worldwide for stable digital currencies such as the planned Libra coin.