G7 says Libra should not launch until risks ‘adequately addressed’

Small toy figures are seen on representations of virtual currency in front of the Libra logo in this illustration picture. (REUTERS/Dado Ruvic/File Photo)
Updated 18 October 2019

G7 says Libra should not launch until risks ‘adequately addressed’

  • A currency like Libra could undermine sovereign nations’ control over their exchange rates, warns France’s economy minister
  • If it enters circulation, Libra would offer an alternative to traditional bank financial transfers

WASHINGTON: Facebook should not launch its global digital currency Libra until proper regulations are in place to handle the potential risks, the Group of Seven said Thursday.
And France’s Economy Minister Bruno Le Maire warned that a currency like Libra could undermine sovereign nations’ control over their exchange rates.
“It’s a matter of democracy, not just a simple economic question,” Le Maire told reporters, saying Facebook’s currency could have an “immediate global reach” through the social network’s huge membership.
Le Maire presented the Group of Seven nation’s statement on Libra, saying “no global stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed,” including the potential for money laundering and terror financing.
But, he told reporters, “The key question is the question of sovereignty.”
“Do we want a private company to have... the same power, and the same sovereignty, as democratic states” over currencies.
Libra, which would be backed by reserve assets unlike cryptocurrencies like Bitcoin, has faced a steady drumbeat of stern warnings from central bankers and financial regulators.
European Central Bank board member Benoit Coeure presented a report on digital currencies to the G7 finance ministers, who are gathering on the margins of the annual meetings of the International Monetary Fund and World Bank.
The report said a framework for oversight of Libra “is an absolute prerequisite,” and urged regulators to coordinate their work to prevent issuers from seeking out the most favorable country from which to operate.
If it enters circulation, Libra would offer an alternative to traditional bank financial transfers, a disruptive change that has aroused resistance and skepticism.
Facebook’s digital currency chief David Marcus told reporters in Washington that the issues raised by Le Maire are “legitimate concerns.”
“We’re determined to answer these concerns with real solutions that will meet or exceed the standards of the current system,” he told a small group of reporters at an event in Washington.
Mark Zuckerberg, Facebook’s co-founder and chief executive, was in Washington as well Thursday, and is due to testify before the US Congress next week on the social media network’s impact on financial services.
The Libra Association, which will oversee Facebook’s proposed currency and officially launched Monday in Geneva, also said in a statement that Libra “is being designed to respect national sovereignty over monetary policy in the digital space, not undermine it.”
But central bankers remain concerned about the prospects.
Lael Brainard, an influential member of the US Federal Reserve board, said Facebook’s proposed currency presented a host of risks and regulatory challenges for preventing money-laundering and assuring financial stability, and could be a challenge to the traditional role played by banks.
“There are likely to be financial stability risks for a stablecoin network with global reach,” she said in a speech Wednesday. “If not managed effectively, liquidity, credit, market, or operational risks — alone or in combination — could trigger a loss of confidence and a classic run.”
China, which is not a G7 member and decided two years ago to block cryptocurrency transactions, has recently sped up plans to introduce its own digital money.
Libra also has faced challenges from within after major financial and commercial players in recent weeks have backed out of the project, including Visa, Mastercard, eBay, Stripe, PayPal and the online travel firm Bookings Holdings.
The 21 founding members include the online payments company PayU, the telecoms firms Vodafone and Iliad, as well as tech outfits Uber, Spotify and Farfetch, blockchain operations such as Anchorage, Xapo and Coinbase and the venture capital firms Andreessen Horowitz, Ribbit Capital and non-profits Kiva and Mercy Corps.


OECD forecast sees global growth at decade low

Updated 40 min 28 sec ago

OECD forecast sees global growth at decade low

  • Governments failing to get to grips with challenges, outlook says

PARIS: The global economy is growing at the slowest pace since the financial crisis as governments leave it to central banks to revive investment, the OECD said on Thursday in an update of its forecasts.

The world economy is projected to grow by a decade-low 2.9 percent this year and next, the Organization for Economic Cooperation and Development said in its Economic Outlook, trimming its 2020 forecast from an estimate of 3 percent in September.

Offering meagre consolation, the Paris-based policy forum forecast growth would edge up to 3 percent in 2021, but only if a myriad of risks ranging from trade wars to an unexpectedly sharp Chinese slowdown is contained.

A bigger concern, however, is that governments are failing to get to grips with global challenges such as climate change, the digitalization of their economies and the crumbling of the multilateral order that emerged after the fall of Communism.

“It would be a policy mistake to consider these shifts as temporary factors that can be addressed with monetary or fiscal policy: they are structural,” OECD chief economist Laurence Boone wrote in the report.

Without clear policy direction on these issues, “uncertainty will continue to loom high, damaging growth prospects,” she added.

Among the major economies, US growth was forecast at 2.3 percent this year, trimmed from 2.4 percent in September as the fiscal impulse from a 2017 tax cut waned and amid weakness among US trading partners.

With the world’s biggest economy seen growing 2 percent in 2020 and 2021, the OECD said further interest rate cuts would be warranted only if growth turned weaker.

China, which is not an OECD member but is tracked by it, was forecast to grow marginally faster in 2019 than had been expected in September, with growth of 6.2 percent rather than 6.1 percent.

However, the OECD said that China would keep losing momentum, with growth of 5.7 percent expected in 2020 and 5.5 percent in 2021 in the face of trade tensions and a gradual rebalancing of activity away from exports to the domestic economy.

In the euro area, growth was seen at 1.2 percent in 2019 and 1.1 percent in 2020, up both years by 0.1 percentage point on the September forecast. It is seen at 1.2 percent in 2021.

The OECD warned that the relaunch of bond buying at the European Central Bank would have a limited impact if euro area countries did not boost investment.

The outlook for Britain improved marginally from September as the prospect of a no-deal exit from the EU recedes.

British growth was upgraded to 1.2 percent this year from 1 percent previously and was seen at 1 percent in 2020.