SINGAPORE (July 1): The Monetary Authority of Singapore has raised questions about Facebook’s plan to launch its own digital currency, in particular about whose regulatory oversight it would fall under.
“We’ve just made provisions for the regulation of virtual currencies, electronic money and wallets and so on. Now, we need to figure out where Libra fits in in this,” says MAS managing director Ravi Menon at a media briefing on June 27. MAS is rolling out the Payments Services Act, which will be in force by year-end.
The regulator says it has held discussions with Facebook about its digital coin, Libra. While Libra promises low-fee payment services and the ability to reach the unbanked population, Menon says there are worries about how Libra will work.
“Very often, with these new developments, the key challenge is to figure out the nature of the beast, what is it more like and which box we can put it into. So, at this point, we are not sure yet. But it is something that we are seriously studying,” he says.
MAS is among many central banks and regulators that have raised concerns about Facebook’s ambitious plan. The US Federal Reserve says Libra will be held to the highest standards of protection for consumers. The French Finance Minister has ruled out Libra’s being seen in the same light as fiat money.
Other regulators are also taking a highly cautious approach towards the digital coin. Andrew Bailey of the Financial Conduct Authority says FCA is working with the Bank of England and the Treasury to monitor Facebook’s plans.
The social network company has come under fire for how it handled user identity and data protection. US lawmakers recently reprimanded it for being grossly unprepared to tackle fake content after a doctored video of US House Speaker Nancy Pelosi made its rounds online in May.
In the past few weeks, observers have pointed out numerous problems with Libra, though most admit that there is too little information at this point to quantify the risk it poses to international financial systems. One of these risks is contingency plans if Libra runs into liquidity troubles.
“Libra, we are told, will be pegged to a basket of currencies (fiat money issued by governments) and convertible on demand and at any cost. But this guarantee rests on an illusion, because neither Facebook nor any other private party involved will have access to unlimited stores of the pegged currencies,” says Katharina Pistor, professor of comparative law at Columbia Law School in a commentary in the Irish Examiner.
As it stands, even Facebook’s 27 partners are not too optimistic about the venture. These partners include big, long-trusted names in the financial services industry such as MasterCard, Visa and PayPal Holdings; online marketplace eBay; telco Vodafone Group; media service Spotify Technology; ride-hailing service Uber Technologies; venture capital firm Andreessen Horowitz; and NGO Mercy Corps.
Some of these partners have reportedly signed non-binding agreements to come on board because they know they can back out if the digital currency runs into trouble. They are also not obliged to promote or use the currency. All these challenges are likely to stand in Facebook’s way to get its two billion users to adopt Libra. More clarity is needed on this proposed digital currency if critics are to be assuaged.
