Libra, the cryptocurrency project proposed by Facebook, has faced intense scrutiny and opposition from regulators and politicians since it was first announced in June 2019. The key concerns raised about Libra are related to its potential impact on financial stability, monetary sovereignty, data privacy, and fair competition. As an ambitious global financial infrastructure project led by a tech giant like Facebook, Libra is seen by many as disruptive to the existing financial system and the power of nation states over monetary policy. This has predictably led to clashes between Libra and regulators worldwide.
Why is Libra viewed as disruptive?
Libra has three key attributes that make it highly disruptive:
- It is a global cryptocurrency platform that could potentially rival or displace sovereign currencies issued by central banks
- It is backed by a basket of global currencies and assets, reducing dependence on any single currency like the US dollar
- The network is managed by an independent Switzerland-based nonprofit Libra Association with over two dozen corporate members
Together, these attributes empower Libra to act as a decentralized global financial system that is outside the direct control of any government or regulatory authority. This challenges the ability of central banks to effectively implement monetary policy and the primacy of sovereign fiat currencies as the dominant medium of exchange. Many regulators see this as an unacceptable loss of control over financial stability and money supply.
Who are the major opponents of Libra?
Libra faces opposition from the following key stakeholders:
Central banks
Central banks are wary of Libra’s potential to undermine national currencies and monetary sovereignty. The G7 central bankers have identified Libra as a significant risk to the global financial system. Major central banks critical of Libra include:
- European Central Bank (ECB)
- US Federal Reserve
- Bank of England
- People’s Bank of China
Their concerns about Libra center around monetary policy control, financial stability, know-your-customer regulations, and potential for use in money laundering or terror financing.
Governments and lawmakers
Governments and elected officials have been vocal about the risks posed by Libra to economies and consumers. Key government critics include:
- US Congress members across both parties
- US Treasury Department
- UK Parliament members
- French and German finance ministers
- Indian government
Lawmakers globally have threatened Facebook with stricter regulation and oversight if it launches Libra without addressing regulatory concerns.
Financial regulators
Global financial regulators have warned Facebook that Libra must meet the highest standards for consumer protection, privacy, trading systems security, capital requirements, and AML/KYC compliance before it can launch. Key regulators challenging Libra:
- US Securities and Exchange Commission (SEC)
- US Commodity Futures Trading Commission (CFTC)
- Financial Industry Regulatory Authority (FINRA)
- European Union antitrust regulators
Regulators have highlighted the systemic risks posed by Libra’s scale, while scrutinizing how it would manage user data or comply with Know-Your-Customer norms.
Consumer protection agencies
Agencies responsible for consumer rights and data privacy protections have raised concerns about Libra, including:
- Federal Trade Commission (US)
- European Consumer Organisation
- Electronic Privacy Information Center (US advocacy group)
They have demanded strong safeguards for user data and questioned Facebook’s fitness to manage a global financial infrastructure responsibly.
What are the specific concerns voiced about Libra?
While the details vary, most critics and regulatory authorities have raised several recurring concerns about Libra:
Threat to monetary sovereignty and currency competition
National regulators fear Libra could threaten the primacy of domestic currencies as the dominant medium of exchange, credit, and reserve assets. It may undermine the ability of central banks to influence their currency’s value or domestic inflation via monetary policy.
Financial stability risks
As a widely accessible cryptocurrency backed by reserve assets, Libra could potentially trigger wider financial instability due to sudden large flows out of domestic currencies into Libra tokens during periods of economic uncertainty. This capital flight could destabilize existing currencies far more quickly than normal.
National security and data privacy concerns
The involvement of Facebook, which has an app with over 2 billion users globally, raises fears that Libra user transaction data may not be sufficiently secure or private. User locations could be surveilled and transaction histories linked to real identities without consent.
Use in illegal activities
Like other cryptocurrencies, Libra tokens may be used for money laundering, terrorist financing, tax evasion, or avoidance of capital controls due to the pseudo-anonymous nature of blockchain transactions. Proper Know-Your-Customer (KYC) checks may be difficult at scale.
Unfair competition and antitrust issues
Facebook has an established dominance in social media, messaging, and online advertising. Libra may give Facebook an unfair competitive edge by extending its platform power into payments and finance access. This raises antitrust concerns.
Concentration of power and lack of accountability
The Libra Association is a private consortium not accountable to any democratic process or regulatory authority. Yet it wields tremendous global financial power due to Facebook’s market dominance. Critics claim too much power is concentrated in too few private hands.
How have regulators worldwide responded to Libra?
Facing intense scrutiny, Libra has met with escalating resistance from financial authorities worldwide:
| Regulator | Actions |
|---|---|
| US Congress | Multiple hostile hearings and calls for a Libra moratorium. |
| European Commission | Setup a crypto and digital asset task force to scrutinize Libra’s rollout in Europe. |
| G7 Working Group | Highlighted Libra as a major threat to global banking stability. |
| US Federal Reserve | Outlined tough regulatory expectations for Libra to meet. |
| Bank of England | Governor Mark Carney voiced concerns over Libra scaling globally. |
| Group of Central Banks | Authenticated a collective risk assessment of Libra for regulators. |
The chorus of warnings from worldwide regulatory authorities makes it evident that Facebook faces an uphill battle getting Libra approved for mainstream use.
What counterarguments does the Libra Association make?
The Libra Association has tried to counter criticisms by highlighting the following:
- Libra will complement existing currencies, not replace them
- It is not a threat to central banks’ control over money supply
- Blockchain architecture offers more financial transparency than cash
- Strong KYC and AML protections will be built in
- Libra will bank the unbanked and fuel inclusive growth
However, most regulators remain unconvinced by these arguments so far. Complying fully with AML/KYC norms at the scale Libra aims for also presents a major technological and organizational challenge for the association.
What compromises has Facebook offered?
To pacify regulators, Facebook and the Libra Association have indicated willingness to make the following concessions:
- Libra will be rolled out as a series of stablecoins pegged to national currencies rather than a single token
- Stronger privacy protections for transaction data and user identities
- Voluntary compliance audits by regulatory authorities
- Restricting early access only to regulated financial firms as validators
- A more decentralized governance structure for the Libra Association
However, most authorities want to see far more binding commitments and changes to Libra’s design before giving it the green light.
What lies ahead for regulatory approval?
Based on current indications, Libra is likely to face the following hurdles in seeking regulatory approval worldwide:
- Negotiating registration as a licensed payment system with central banks
- Satisfying demands for more decentralized control and governance
- Guaranteeing strong protections for currency stability and KYC compliance
- Providing greater transparency around how collected data will be used
- Committing to interoperability with existing payment rails like SWIFT
- Agreeing to oversight mechanisms and addressing competitive concerns
Additionally, individual Libra Association members like Visa, Mastercard, Stripe, and eBay have faced direct pressure from lawmakers to exit the coalition amid growing regulatory heat.
Unless Facebook makes substantial design changes to Libra, the regulatory path ahead will likely remain rocky, uncertain and beset by political roadblocks worldwide.
Conclusion
In its current proposed form, Libra faces powerful headwinds from regulators, central banks, and politicians worldwide who are keen to preserve existing monetary and financial power structures. While the Libra Association has tried to reassure authorities, its arguments have so far failed to convince regulators about giving up control over money supply, cross-border capital flows, and user data privacy. Unless Facebook and its partners make meaningful compromises to decentralize Libra and restrict early access, regulatory approval in key markets will remain an uphill climb despite the project’s ambitions.