Libra: Should It Be "Blocked"?

Original Title:《Should Libra Be "Blocked"?》

Original Source: Forbes

Translation: Moni, Odaily Planet Daily

For Facebook's digital currency Libra, the past week has not been easy.

The first attack on Libra came from the Swiss Financial Market Supervisory Authority (FINMA). Following a visit to Switzerland by a six-member delegation led by U.S. Congresswoman and House Financial Services Committee Chair Maxine Waters, the Swiss regulatory agency, which had been relatively friendly to Libra, suddenly changed its stance.

In July, the Swiss Federal Data Protection and Information Commissioner (FDPIC) claimed that Facebook's cryptocurrency project lead, David Marcus, made inappropriate statements during a congressional hearing because they had not received any instructions regarding personal data processing related to Libra. The regulatory body also demanded that the Libra Association provide detailed information on the current status of the project to regulatory authorities to assess to what extent its advisory abilities and supervisory powers will be applied.

The Libra Association has now submitted a request for ruling to the Swiss Financial Market Supervisory Authority to clarify its regulatory status and is seeking a payment system license from Swiss financial regulators.

Next in line are two major European countries: France and Germany.

French Minister of the Economy and Finance Bruno Le Maire explicitly expressed concerns about Libra during the opening ceremony of the OECD Blockchain and Cryptocurrency Conference in Paris, stating that it could pose a threat to national sovereignty and even gradually replace France's domestic currency. Therefore, France will not accept the launch of Libra on the European continent. The governing coalition of the two major parties in Germany, the 'Grand Coalition,' has also revealed its intention to block privacy-oriented stablecoins, including Libra. German Christian Democratic Union (CDU) member of parliament Thomas Heilmann, responsible for shaping blockchain policy, stated that the German government plans to ban the issuance of market-related privacy stablecoins in the national blockchain strategy. He also highlighted that central banks have been performing well in addressing crises and inflation. If dominant digital currency providers take over the market, it will become very difficult for central banks to regain control.

At the time of writing this article, according to Xinhua News Agency, the finance ministers of Germany and France have issued a joint statement in Helsinki, Finland, reaffirming the importance of monetary sovereignty. They oppose the implementation of the Facebook-led cryptocurrency Libra in Europe. In their statement, the two countries believe that Facebook's Libra cryptocurrency plan has not adequately addressed the above risks. Furthermore, they acknowledge the need to enhance the efficiency of the existing international payment system. At the European level, both governments are determined to address the challenges posed by virtual currencies in the areas of financial security, investor protection, anti-money laundering, and counterterrorism financing. They also urge all banks to work together to improve the European payment system and encourage central banks across Europe to accelerate work on public digital currency solutions.

Under the increasing pressure of regulation, one can't help but ask: Should Libra really be "blocked"?

At least in the view of Robert Courtneidge, Chief Global Payment Lawyer and CEO at the international payment company Moorwand, we should actually embrace and accept the stablecoin Libra instead of confronting or blocking it.

Today, we may have to face a question: the future of payments is likely to depend on the development of the blockchain industry and the way new currencies are created. Although the emergence of cryptocurrency has raised a series of issues, these issues also exist in the traditional industry. For example, when prepaid cards first appeared, there were many instances of money laundering. However, as cryptocurrency has emerged, it has actually addressed some of the negative aspects that existed in e-money. Yet, despite this progress, there are still many misconceptions and rumors about cryptocurrency.

Robert Courtneidge added:

"Blaming cryptocurrency is somewhat understandable, as it is much easier to blame than to provide a good solution. However, if handled improperly, the wrong judgment can cause serious harm to a very large industry with positive growth potential."

Robert Courtneidge realized early on the immense potential of cryptocurrency in the new era. He believes that "neutrality" will greatly promote the international banking and payment industries by streamlining the current system through the elimination of cumbersome traditional business processes.

A few months ago, Facebook released the Libra whitepaper. This digital currency is managed by a non-profit organization called the Libra Association, responsible for validating Libra blockchain transactions and managing the reserve. It has already attracted companies like Visa, Mastercard, PayPal, Uber, Lyft, and Spotify.

As Libra enables global users on the Facebook platform to conduct financial transactions, many regulatory bodies see it as a threat to the current banking system. However, Robert Courtneidge mentioned that several years before Facebook announced Libra, he had conversations with some central banks about a concept termed a "central bank digital currency," a currency that could be used to convert national central bank-issued fiat currencies on the blockchain, akin to the Pound settlement system operated by the Bank of England.

On the other hand, a global settlement system would permit this metamorphosis. The real issue lies with governments worldwide, as the introduction of a "currency" like Libra might make them apprehensive about losing control over their national currencies. However, this is where the stablecoin nature of Libra can come into play. In the next phase, Libra needs to strive to create something that is insensitive to countries, neutral to governments and banks.

Robert Courtneidge remarked that the entities within the Libra Association cannot control Libra. Libra offers a transparent and immutable way of transferring value (if implemented correctly). While initially sponsored and created by Facebook, Libra will be handed over to the entire association for maintenance and system upgrades.

Libra can establish special nodes for governments and national banks

Robert Courtneidge believes that there is no reason why Libra cannot grant specific access to relatively large institutions. For example, it could provide special access to governments and central banks by setting up specific nodes with designated access and capabilities to view transactions from particular countries/regions. If established correctly, civil liberties and national rights can still be protected, especially concerning anti-terrorism financing and anti-money laundering.

Robert Courtneidge stated:

"This would create a utopian paradise where value can freely flow in an environment that does not allow any wrongdoing. Even if money laundering and terrorism financing were to occur, due to the system being transparent, immutable, and traceable, these illicit transactions would be exposed on the system, with nowhere to hide."

However, according to Robert Courtneidge, once Libra establishes special nodes for governments and central banks, it may trigger various conspiracy theories. For instance: governments could conceal their transactions in multiple ways while still being able to view others' payments. Should this practice be allowed? Why can't governments adhere to the blockchain's immutability and transparency requirements? Is this responsible? Would this situation lead to more accountability issues? And so on.

When you lose control over the transfer of value, answering these questions becomes exceedingly tricky. In simple terms, banks are more like mobile fund record systems; they are reluctant to detach from the value transfer system as it is the lifeblood through which banks firmly control value transfer. However, with the advent of Libra, you will realize that Facebook has essentially established a new global central bank, posing a significant threat to the business viability of other banks.

The next question is, if Facebook is creating a new alternative global settlement currency, will it undermine the U.S. dollar? The United States has always sought to maintain global dominance through the dollar, but the Libra stablecoin meets that standard, and with Facebook's backing, it can be regularly updated and secure.

In his paper "Regulating the 'Unstable' Currency," Robert Courtneidge writes:

"All the regulatory frameworks for stablecoins are in place—regulators must ensure they are not misled by misconceptions and should not blindly assume that stablecoins, due to their disruptive nature, will compete with national currencies in the form of a fully private global currency."

If all fintech companies leverage their financial, data, and social power to promote stablecoins like Libra, then we can fully expect that the personal efforts of Congresswoman Maxine Waters alone will find it hard to stop the momentum of the cryptocurrency industry's development.

Choosing Switzerland as the headquarters of the Libra Association because of its "neutrality"

In fact, Robert Courtneidge believes that the choice of Switzerland as the headquarters of the Libra Association instead of the United States is due to Switzerland being a neutral country. Interestingly, the fact that U.S. Congresswoman Maxine Waters is leading a six-person delegation to visit Switzerland and discuss Libra with local regulators is precisely because the United States does not want to lose its position as the global leader in financial services.

Libra should be allowed as it helps eliminate many frictions in the current financial system, but industry participants must ensure that regulatory bodies do not hinder the development of stablecoins due to pressure from banks, central banks, and governments.

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