02 September 2019

ECB's Mersch: Money and private currencies - reflections on Libra

Yves Mersch, Member of the Executive Board of the ECB, reflected on Libra and its differ from other private currencies and from public money, its regulation and a position of the ECB towards Libra. He also expressed that Libra’s ecosystem is not only complex, it is actually cartel-like.

Mr Mersch focused in his speech on Libra, Facebook's newly announced private currency. It is scheduled for release in the first half of 2020 by the very same people who had to explain themselves in front of legislators in the United States and the EU on the threats to our democracies resulting from their handling of personal data on their social media platform, he mentioned.

There are three key questions here. First, how does Libra differ from other private currencies and from public money? Second, what legal and regulatory challenges does it pose? And third, in the light of its mandate, what position should a central bank like the ECB take towards Libra?

The remainder of his speech was dedicated to these three questions, not with a view to conclusively answering them, but merely to raise awareness of some of the risks of Libra, to question its main premises and, in the process, to highlight the perils of entrusting the smooth processing of payments, the savings of citizens and the stability of the global monetary and financial systems to unaccountable private entities with a questionable track record in matters of trust.

Despite the hype surrounding it, Libra is, in some respects, no different from other, established private currencies. Similar to cryptocurrencies, Libra will be issued through a public ledger running on a form of blockchain technology. And similar to e-money, Libra will be distributed to end users electronically in exchange for funds denominated in fiat currencies.

The stance of central banks towards modern forms of money is bound to evolve with time, and central bankers have embraced technological developments in the field of money and will continue to explore helpful new innovations. But the rise of cryptocurrencies and other forms of privately issued instruments that can only fulfil some, but not all, of the functions of money is unlikely to fundamentally upset the two truths Mr Mersch described. If anything, it will serve as a useful reminder of central banks' pivotal role as responsible stewards of public trust in money, and stress the need for vigilance towards phenomena capable of undermining public trust in the financial system.

Mr Mersch hopes that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook's siren call.

Full speech

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