Bruno Le Maire has found a punching bag: Libra, Facebook’s blockchain currency project. On Thursday September 13, the French Finance Minister expressed his opposition to the development of the digital currency in Europe, asserting that: “Our monetary sovereignty is at stake.”
“It’s a bit like Bruno Le Maire versus Libra Act II or Act III,” Loïc Sauce, an economist and cryptocurrency expert at the Institute of Higher Education in Marketing and Commerce (ISTEC), told FRANCE 24. Le Maire has been wary of the project since Facebook announced in June its plan to enable its nearly two billion users to pay and send money with its new currency, Libra.
Protecting the government’s domain
Initially circumspect, Le Maire has since become openly hostile to the plan. In addition to the risk to sovereignty, he has also cited the “danger to consumers” and “systemic risk” when talking about Libra.
“The minister’s reaction is understandable. The power to mint coins is historically the prerogative of the state. Now there is a group of private enterprises (the Libra Association – the non-profit that will oversee the currency includes companies such as MasterCard, Uber, Spotify and Vodaphone) saying that their currency is more useful than those being employed in the territories where Facebook is present,” said Michel-Emmanuel de Thuy, digital director at 99 Advisory, a management consulting firm that specialises in the financial sector.
Le Maire hasn’t shied away from hitting Facebook where it hurts. By raising the issue of monetary sovereignty, Le Maire is insinuating that, if successful, Libra could interfere with monetary policies, de Thuy noted. If two billion people turn to Libra for a portion of their online transactions, “governments risk losing control over a significant part of financial flows, which would deprive them of information that is important for determining monetary policy,” said Nathalie Janson, an economist and bitcoin specialist at the Neoma Business School.
For the time being, Facebook is only considering using Libra to allow its users to transfer funds through its site or its messaging services (WhatsApp, Messenger) and to pay some of its merchant partners online. “But as technological progress accelerates, some countries may fear that this dematerialised currency will, in the not too distant future, be used to pay for everyday purchases, such as baguettes,” de Thuy said.
Facebook ‘too big to fail’
In a world where Libra is established as a currency that competes with the euro, the dollar, or other currencies, Facebook would become de facto “too big to fail”, like the banks that governments cannot let go bankrupt for fear of destabilising their entire economies. If Mark Zuckerberg’s Facebook empire were to collapse, the money that users had in their Calibra virtual portfolios – managed by Facebook – “would not be covered by a government guarantee, as can be the case with bank accounts, and the losses could affect the entire economy. This is the systemic risk that Bruno Le Maire is referring to,” Janson explained.
These worst-case scenarios remain hypothetical and Libra is still in the development stages. But Le Maire believes that prevention is better than cure. He is not the only one: American senators also strongly expressed their opposition to Facebook’s planned currency during the July 2019 hearing of David Marcus.
But figuring out how to respond is not easy. “Lawmakers could, at most, prohibit the payment of taxes in Libra and a court could sanction a contract that uses this currency as a means of payment,” Janson said. Sauce concurred. “Beyond that, the state’s means of intervention are very limited. If an American website, for example, decides to allow payment in Libra, France cannot prohibit it,” he said.
A public cryptocurrency to counter Libra?
Likely aware of those limits, Le Maire seems to be in favour of creating a digital currency managed by central banks – a kind of public Bitcoin – in response to Libra. In an interview with La Croix newspaper (and without ever mentioning Facebook’s initiative) he explained that such a digital currency would have the advantage of making “transactions faster and cheaper” (because there would be fewer costs associated with cash management) and would facilitate access to financial services for “less bankable” populations. These are, almost word for word, the advantages Facebook cited when presenting Libra.
Le Maire drove the point home on September 13 by issuing a joint statement with his German counterpart, Olaf Scholz, urging the European Central Bank (ECB) to “accelerate its thinking on a public digital currency”.
“This idea of a public virtual currency has been discussed by central banks for years, but has never been a priority. In a sense, it can be said that the threat of the arrival of Libra has made the debate on the modernisation of the currency more pressing,” de Thuy said.
Such a currency would have the advantage over Facebook’s of “benefitting from the official guarantee of the central bank”, Janson said. But all of the European governments would need to agree on its creation, first in principle and then on the details. In other words, Facebook may have time to introduce its Libra and cash in before the ECB even has a chance to propose an alternative.
The battle between certain countries – including France – and Facebook for the future of currency could have an unintended victim: the pioneering spirit of cryptocurrencies. Both Libra and the public project proposed by Le Maire call for systems controlled by a central body; whether it is the Libra Association in Geneva or the ECB. These projects are far from the ideal defended by Bitcoin’s promoters, who want to establish a system that would be free of intermediaries, such as banks, and of organisations at the top of the pyramid. Whether it is Libra or a public digital currency that gains a foothold, either would be a blow to the revolutionary ambitions of the original cryptocurrency movement, which aimed to establish a new financial system, Janson concluded.
<span lang=”EN-US”><span>This article was adapted from the original in French.</span></span>