Facebook’s cryptocurrency Libra: an international security concern?

Facebook’s announcement of its own digital currency has a place on the agendas of ministries and financial regulators around the world.

The U.S. government is concerned that Libya could be misused for money laundering, human trafficking, and terrorist financing; the same goes for criticism of other cryptocurrencies. U.S. Treasury Secretary Steven Mnuchin even said it was a “national security issue.”

The Treasury Department has made it clear to Facebook that it must implement the same anti-money laundering and counter-terrorism financing measures as other financial services providers. So, in terms of security alone, Facebook is far from giving its Libra the green light.

Federal Reserve Chairman Jerome Powell has warned that he is concerned about user privacy, money laundering, consumer protection and the stability of the financial world. ​The important aspect if one considers the scope of Facebook’s virtual currency, which may have around 2.5 billion users.

“Instability Effect”

The plan is to launch the virtual Libra as a so-called “stablecoin,” meaning the digital currency is pegged to the price of “real” currencies like euros and dollars, and will be exchanged 1:1. But therefore, each Libra is backed by real coins, and its 100% coverage cannot be maintained for a long time.

“Money creation has a destabilizing effect,” said Hendrik Leber, a fund manager at asset manager Acatis. “While the Library plan is 100% supported, at some point you lose 50% and suddenly you have a strong credit generation mechanism, which makes sense.”

In the traditional monetary system, the generation of credit is reserved for banks that can make loans that are not fully covered by monetary reserves. With this, in effect, banks create money. As far as Donald Trump is concerned, he believes that a company like Facebook that wants to get into the banking industry should be subject to banking regulation like a bank.

Bank death certificate?

At the international level, the issue will be discussed on the highest political stage, the G7 finance ministers meeting in France on July 17 this year. Hopefully the skeptics will prevail. But banks have to be more nervous than regulators and supervisors. “Large social network providers such as Amazon, Alibaba or Google are expected to launch a cryptocurrency in the coming years as the basis for building financial relationships with their customers,” predicts Hendrik Leber. Banks that charge higher fees will be the losers.

Banks and other financial service providers have so far charged even the poorest people to send money internationally, charging the highest fees. Libra payments will no longer go through bank lockers and will no longer need to be an intermediary to earn income.

Facebook’s announcement of its own digital currency has a place on the agendas of ministries and financial regulators around the world. The U.S. government is concerned that Libya could be misused for money laundering, human trafficking, and terrorist financing; the same goes for criticism of other cryptocurrencies. U.S. Treasury Secretary Steven Mnuchin even said it…