In the News

Facebook’s cryptocurrency Libra finding few friends in government, banking industry

Daily Voice Plus
10/19/19

Invoke the prefix “crypto” to most people, and negative thoughts are likely to follow; after all, dictionary.com defines the term as a noun meaning “a person who secretly supports or adheres to a group, party, or belief” and an adjective meaning “secret or hidden; not publicly admitted.” In case that isn’t clear enough, it adds the example “crypto-Nazi.”

So it should come as no surprise that cryptocurrency – “a digital currency or decentralized system of exchange that uses advanced cryptography for security,” with Bitcoin being perhaps the best-known example – is viewed with suspicion in many quarters.

Including, it turns out, banks, who understandably prefer dealing with currency the old-fashioned way; namely, in cash, or its multitudinous variations based upon legal tender.

At the end of September, the Federal Advisory Council (FAC), which is composed of 12 representatives of the banking industry, wrote to the Federal Reserve that Facebook’s nascent cryptocurrency Libra would pose a threat on monetary policies throughout the country.

“Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets — or a ‘shadow banking’ system,” the banks said, according to minutes of the FAC meeting. “As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”

Members of the FAC include M&T Bank Corp. CEO Rene Jones, KeyCorp CEO Beth Mooney and Bank of America Corp. CEO Brian Moynihan. All declined further comment for this article.

Coinciding with the FAC’s meeting was a letter sent to Federal Reserve Chairman Jerome Powell by U.S. Reps. French Hill, R-Arkansas, and Bill Foster, D, Illinois, calling on the government to create and manage its own national digital currency.

“We are concerned that the primacy of the U.S. Dollar could be in long-term jeopardy from wide adoption of digital fiat currencies,” they wrote. “Internationally, the Bank for International Settlements conducted a study that found that over 40 countries around the world have currently developed or are looking into developing a digital currency.”

Over the summer, Powell had said that Libra raised “serious concerns regarding privacy, money laundering, consumer protection, financial stability” and that the Fed had launched a working group to examine it.

Meanwhile, Libra has also come under fire by Bruno Le Maire, Economy and Finance Minister of France. “It would be a global currency, held by a single player, which has more than two billion users around the world,” he said. “The monetary sovereignty of states is under threat.

“I want to be absolutely clear: In these conditions, we cannot authorize the development of Libra on European soil,” he added.

And it isn’t only the multinational players who are taking notice. “As a participant in a highly regulated industry, we always worry about any competitor that doesn’t have to play by the same rules,” remarked Newtown Savings Bank President and CEO Ken Weinstein. “Given Facebook’s scale and history of privacy-related issues, it is important that Congress consider the potential implications of Libra to ensure that U.S consumers and our economic system are not harmed.”

Other banks in Fairfield and Westchester counties declined to comment, with Orange Bank & Trust Co. President and CEO Michael Gilfeather limiting his remarks on cryptocurrency to “It has no part of our bank nor strategy.”

Meanwhile, The Libra Association – a group of 28 companies Facebook assembled to oversee the cryptocurrency – has lost several key members since PayPal announced it was getting out.

“PayPal has made the decision to forgo further participation in the Libra Association at this time and to continue to focus on advancing our existing mission and business priorities as we strive to democratize access to financial services for underserved populations,” it said.

A week after PayPal’s exit, eBay, Mastercard, Visa, Stripe, and Mercado Pago also dropped out, though a Visa spokesman said its “continued interest in Libra stems from our belief that well-regulated blockchain-based networks could extend the value of secure digital payments to a greater number of people and places, particularly in emerging and developing markets.”

On Oct. 14, Booking Holdings, the Norwalk online travel company formerly known as Priceline Group, joined the exodus.

For its part, the association has responded to all the governmental and financial concerns by saying they “underscore the importance of our ongoing work with regulatory bodies and leadership around the world.

“In the nearly three months since the intent to launch the Libra project was announced, we have become the world’s most scrutinized fintech effort,” the association said. “We welcome this scrutiny and have deliberately designed a long launch runway to have these conversations, educate stakeholders and incorporate their feedback in our design.

“The Libra Association and its members are committed to working with regulatory authorities to achieve a safe, transparent, and consumer-focused implementation of the Libra project,” it added.