European Central Bank (ECB) executive board member Yves Mersch reportedly cautioned at the European System of Centralized Banks legal conference that Facebook’s cryptocurrency, Libra, poses a threat to European monetary policy.
Also a lawyer from Luxembourg, Mersch voiced his concerns about the issuance of Libra coins, arguing how Libra’s widespread use could undermine the powers of the ECB.
“Depending on Libra’s level of acceptance and on the referencing of the euro in its reserve basket, it could reduce the ECB’s control over the euro, impair the monetary policy transmission mechanism by affecting the liquidity position of euro area banks, and undermine the single currency’s international role,” Mersch said. (RELATED: Lawmakers Question Libra Amid Facebook Privacy Concerns)
Facebook has created a cryptocurrency called Libra intended to make anonymously sending money online faster and cheaper. Libra is targeting users who do not have bank accounts or have little access to banking, according to CNN.
Similar to traditional currencies, Libra will be regulated but Mersch points out the setup of the cryptocurrency would pose challenges.
“Libra coins will be issued by the Libra Association – a group of global players in the fields of payments, technology, ecommerce, and telecommunications,” he said discussing the structure of Libra. (RELATED: China Appears Very Interested In Facebook’s New Cryptocurrency, Libra)
“The Libra Association will control the Libra blockchain and collect the digital money … Libra-based payment services will be managed by a fully owned subsidiary of Facebook, called Calibra,” he continued.
Even though Facebook developed Libra, it will not be the one managing it. Libra Association, an independent nonprofit organization, will supervise Libra’s operations and the cryptocurrency’s blockchain technology — a program that records financial transactions that allows digital information to be dispersed but not replicated. Libra will use blockchain technology in its financial services including banking deposits and transactions from one individual to another, similar to that of Bitcoin, according to Forbes. In addition, there is another entity called Calibra, which is a Facebook subsidiary that develops the services that Libra provides to users.
Mersch suggests there could be trust issues since it will not be backed by a central back, according to coindesk, a news site specializing in digital currencies.
“With such a set-up, it is difficult to discern the foundational promises of decentralization and disintermediation normally associated with cryptocurrencies and other digital currencies,” he said.
Facebook’s reinvention of cryptocurrency will launch early next year.