Libra is a cryptocurrency sponsored by Facebook, to be governed by the Libra Association.
- What should governments and central banks do about Facebook's Libra?
- Governments and treasurers should not underestimate the benefits of a stable global currency, which Libra is vying to be. The free flow of liquidity across borders at little or no cost, stable asset prices and ease of use are just some of the many benefits of using a stable cryptocurrency.
- However, to ensure the risk to the financial system is minimised, central banks, regulators and institutions, such as the UK’s Financial Conduct Authority and the International Monetary Fund, will need to address the following:
- 1. Will they allow some decentralisation of monetary policy to a private institution, thus placing some of the levers that control inflation and economic output in the hands of a non-publicly accountable entity? Can they stop this occurring? It seems likely that many countries will simply not allow this evolution to happen.
- 2. Will capital controls over the value of Libra flowing across borders and in-country be required to limit the amount of Libra in circulation, at least initially? Perhaps a phased approach would reduce risk.
- 3. Rules and regulations will need to be created regarding Libra bank accounts, KYC, anti-money laundering regulations and anti-fraud measures in order to protect consumers and companies.
- If governments and regulators fail to watch closely, significant harm could be done to the financial system. Indeed, only days following the announcement, we saw significant resistance from politicians, activists and bankers – testifying to both the potential Facebook has to make a success of Libra and the known and unknown risks posed by the new digital currency.
- What should treasurers do about Libra?
- If Libra is a success, with proper controls and regulation, Facebook could develop a host of other banking services, which treasurers may want to take advantage of given the global reach of the social media giant. Transaction costs could be significantly reduced and liquidity management streamlined. Imagine the benefits of using just one currency for global operations. I think we are some way off that, currently.
- Treasurers will need to stay informed on the potential impact of Libra on their liquidity, FX and risk-management processes, both the risks and the benefits. If Libra is a success, we could witness a major change in the financial landscape not seen since the rise of the internet and smartphones.
- Treasurers may then experience one small snag from Libra's success. What would we treasurers actually do?
- The Treasurer web exclusive, July 2019, Joe Scattergood FCT, chartered accountant and corporate treasurer, edited.
Libra was a former measure of weight in ancient Rome, equivalent to 12 ounces, and the forerunner of the modern pound weight.
It is the source of the currency names lira and livre.
- Capital control
- Financial Conduct Authority
- International Monetary Fund
- ISO currency codes
- Know-your-customer (KYC)
- Social media