The Bank of Japan (BoJ) has officially joined the debate on Libra – the new cryptocurrency set to be launched next year by Facebook and its partners – saying it must comply with regulations on money-laundering.
Deputy governor of the BoJ Masayoshi Amamiya said at a Reuters Newsmaker event on Friday that all cryptocurrency operators must follow regulatory frameworks regarding financial crime and risk management.
Potential Impact on Banks
He added that central banks must be vigilant on what the potential impact of a large corporation such as Facebook setting up its own cryptocurrency could be on their country’s banking and settlement systems.
He said:
As for Libra, we must bear in mind that the potential global user-base could be enormous.
Advised by the Financial Stability Board (FSB), most central banks had, hitherto, largely considered cryptocurrencies too small an asset class to pose any threat to financial stability.
But in a speech some two months before Libra's launch was announced, Randal Quarles, chair of the FSB, noted:
Both the potential entry of large, established technology companies into financial services and the ability of technology to decentralize financial transactions raise a number of issues, some of which may touch on financial stability.
Central Bankers Take Notice
So when Facebook announced last month that it intended to launch the Libra digital currency in 2020, the world’s central bankers sat up and took notice.
France’s central bank governor Francois Villeroy de Galhau was among the first to act, calling for a G7 task force to research the potential impacts of a large, multinational company setting up its own currency. This followed a warning from the country’s economic minister that Libra must not try to act as a rival to sovereign currencies.
Bank of England governor Mark Carney also urged caution, raising the point made by the FSB chair – that a decentralized payment system using a currency backed by a corporation as big as Facebook could be systemically significant.
Last week the Monetary Authority of Singapore (MAS) said it was in talks with Facebook. MAS managing director Ravi Menon, said we must “figure out the nature of the beast”.
Threat to Sovereign Currencies
All are addressing concerns that the international prominence of Facebook could help propel the cryptocurrency’s popularity among the social network’s 2.4 billion global users and present a real challenge to the stability of some nations’ sovereign currencies.
The BoJ deputy governor told the Reuters event that the central bank had shelved plans to launch a digital currency of its own, given the uncertain regulatory and risk factors. He said:
If central bank digital currencies replace private deposits, that could erode commercial banks’ credit channels and have a negative impact on the economy.
Facebook will appear before two US congressional hearings later this month – one in the Senate and the other in front of the House – to testify on the privacy implications of its Libra currency.
