Could a digital currency like Libra ever replace the dollar? | FT


Central bankers like
to hang out together. Because it’s a hard job. It’s a bit like being president. There just aren’t a
lot of other people who understand what
you’re going through. So they meet, in Basel, in
Jackson Hole, in Washington, and they talk about
stuff that bothers them. At the annual meeting
of the IMF this year they spent a lot of time
talking about Libra. And that’s because Facebook
is about putting power in people’s hands. This is Facebook’s
plan to create a new global digital currency
backed by a reserve of existing assets, like dollars and euros. Central bankers
didn’t used to think they had to think
about digital currency. Then Facebook announced Libra. Now they have to think about it. Maybe it has sort of
gelled during the summer because we ended up with
a lot of conversations about Libra, because
Libra kind of showed up, at least from a central
bank perspective, kind of out of the blue. But to me this conversation
was not new at all. And that’s because
in my country we are moving rapidly out of
cash under all circumstances. So we have had good reasons
to think about these things. Central banks are thinking hard
about Libra for two reasons. First, is scale. There are other stable coins,
digital money like Libra, backed by existing currencies. But Facebook is massive. And it’s everywhere. This is why Mark
Zuckerberg had to testify before Congress about Libra. Facebook is big,
and big is scary. The Libra Stable Coin
Project stands out for the speed with
which its network could reach global scale in payments. It wasn’t an accident
that Lael Braynard gave that speech in
Washington the same week as the IMF meetings. She was sending a message. Yes, Facebook, we
are talking about you when you’re not around. And we’re not
saying good things. What sets Facebook’s Libra
apart is the combination of an active user network
representing more than a third of the global population,
with the issuance of a private digital
currency opaquely tied to a basket of
sovereign currencies. It should be no surprise that
Facebook’s Libra is attracting a high level of scrutiny from
lawmakers and authorities. Libra is going to be
backed mostly by dollars. And I believe that
it will extend America’s financial
leadership around the world, as well as our democratic
values and oversight. So that’s the second thing
that bothers central bankers. Libra wouldn’t use existing
regulated currencies. It would use them
to create its own. The biggest risk there
is to smaller economies, where there’s already a
tendency to dollarise, to save physical dollars. A new global currency
could accelerate dollarisation, or Libraisation. If a stable coin is not issued
in the currency of the country where it is going to be used, so
for example, the Caribbean say, it could be that this is
taking over the majority of transactions. And at that point,
the central bank is losing control
of monetary policy. So dollarisation is a real risk. The vehicle where you
could get the big changes are the platforms like Facebook,
with over two billion people using it. And there was a lot
of nice approaches within the Libra coin where
you could see lots of value. The difficulty for
central bankers is, how do you regulate
something like Libra? I think Facebook hadn’t
thought through carefully how important
control of currency is for governments
and for central banks. Ultimately, the
question here is, who gets to decide what money is? Countries have been fighting
for several hundred years to control the supply of money. They’re not going to give it up
just because Mark Zuckerberg is ambitious. The financial
industry is stagnant and there is no digital
financial architecture to support the
innovation that we need. I believe that this problem can
be solved, and Libra can help. Public sector has always had
a say when it comes to money, so it’s hard to
imagine that you create sort of entirely private
monies, using the plural. And if history gives
us any guidance those types of arrangements tend
to collapse sooner or later. That’s why we have
central banks. When private companies
create their own money, there can be innovation,
but there can also be pretty destructive
consequences. Central bankers know this. And that’s why when they hang
out these days, sometimes they’re gossiping
about Facebook.

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