Central bankers around the world said on Thursday that Facebook would find itself dealing with many regulatory questions about its new crypto currency.
The social network outlined its virtual currency plans, called Libra, earlier this week, a move that almost provoked a reaction from both politicians and regulators.
French Finance Minister Bruno Le Maire warned that Facebook’s cryptocurrency would become a “sovereign currency” hours after Facebook announced it.
At the same time, the Senate Banking Committee recently called on the technology giant to join a hearing on its ambitions to create a crypto currency.
” I think there’s a lot of water to flow under the bridge before Facebook’s proposal becomes something that we’re using all the time,” Reserve Bank of Australia’s Governor Philip Lowe told a news conference on Thursday.
“There are a lot of regulatory issues that need to be addressed, and they’ve got to make sure there’s a solid business case.”
What is the Libra currency?
The new Facebook token will take the form of a stable currency, a digital currency that is asset-backed– just as other currencies, such as the dollar – to avoid the fluctuations that appear in most crypto currencies. In the case of Facebook, the currency is supported by a basket of bank deposits and short-term government securities.
The new currency will be supervised by a wide range of companies ranging from payment companies such as Visa and Mastercard to technology giants like eBay and Uber. It is scheduled to be launched in 2020.
Experts said that although Facebook’s crypto project is a good signal for the industry, potentially leading to more adoption, regulation may be a major hurdle to the project.
“It does seem clear that something like this could be very important from a regulatory point of view, Deputy Governor Sam Woods was quoted as saying by Reuters news agency.
Mark Carney, the UK’s central bank governor, has already said earlier this week that the Facebook crypto project should be expected to meet the “highest standards of regulations”.
The Indonesian Central Bank was also reported to have commented on the Facebook token topic on Thursday, saying the company’s plans should be reviewed.
Meanwhile, Federal Reserve Chairman Jerome Powell said on Wednesday he had spoken to Facebook about Libra’s currency. Powell said the Fed would have “high expectations” for the currency in terms of its safety and whether it was in line with financial laws.
“I have no doubt that there will have been regulatory discussions or some kind of ‘pre-approval’ going on behind the scenes, “ said Andy Bryant, co-head of cryptocurrency exchange activity at bitFlyer.
“Of course, there will be plenty of areas where we can expect that regulators will ask for further clarity – which has evidently started happening already — however Facebook’s team will no doubt be fully prepared for this. “
The world’s most famous encryption currency, Bitcoin, was created to take financial institutions out of the picture. This currency faces a lot of regulatory questions especially because of its use in illegal transactions and speculative trading.
Jeff Sloan, CEO of Global Payments, said that regulatory control over Libra will be a welcome sign.
Given that Facebook works with known players such as Visa and Mastercard, it has the advantage of having partners with experience in dealing with current regulations.
Responding to concerns about regulation, Facebook said it looked forward to addressing policy makers’ questions about its cryptocurrency plans.