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| Facebook had hoped backers of its Libra project would swell from an initial 28 to "well over 100", but instead, several initial supporters have abandoned a scheme which regulators say threatens the global financial system / © AFP/File |
The Libra Association, created by Facebook to launch its new cryptocurrency, kicked off its first council meeting in Geneva on Monday, despite defections by previous supporters like Visa and Mastercard.
The meeting
also comes as the planned Libra global currency faces swelling criticism from
regulators, and reported warnings from the G7 group of nations that it poses a
threat to the global financial system.
Following
Monday's meeting, the non-profit association was due to announce its founding
membership and provide more details on how it plans to proceed.
Last month,
it voiced hope that the number of companies backing it when it opened for
business would swell from an initial 28 to "well over 100" companies.
But instead
the list has shrunk, after more of its initial backers abandoned the alliance
amid swelling criticism from regulators around the world on the planned Libra
global currency.
Credit card
giants Visa and Mastercard, online marketplace eBay and digital payments firm
Stripe each announced Friday they had changed their minds about being founding
members of the association, following a similar recent announcement by digital
payments firm PayPal.
Libra
Association confirmed Friday that the companies would no longer be founding
members, but said that it would continue building an alliance of businesses,
social-good organisations, and others to implement the cryptocurrency.
Threat to
financial stability?
The
membership departures came after US senators sent letters to several financial
firms noting that they could face "a high level of scrutiny from
regulators" if they participated in the new currency plan.
French
economy and finance minister Bruno Le Maire has warned that under current
circumstances, Libra posed a threat to the "monetary sovereignty" of
governments and could not be authorised in Europe.
Facebook
executives have, however, claimed the new digital coin could help lower costs
for global money transfers and help those without access to the banking system.
Facebook
chief Mark Zuckerberg is set to testify at an October 23 hearing in the US
House of Representatives on the Libra plan.
But in a
fresh blow, a draft G7 report has outlined nine major risks posed by such
digital currencies, according to the BBC.
The report,
due to be presented to finance ministers at IMF's annual meeting this week, did
not single out Libra but referred to "global stablecoins" with the
potential to "scale rapidly" as posing a range of potential problems.
Stablecoins
are seen as more steady than cryptocurrencies like Bitcoin, since they are
pegged to traditional currencies such as the US dollar or the euro.
But the G7
draft report reportedly cautioned that such currencies could pose problems for
policymakers setting interest rates, and could threaten financial stability if
users suddenly suffer "loss of confidence" in the digital currency.
Randal
Quarles, the head of the Financial Stability Board (FSB), which oversees
regulation among G20 economies, also sent a letter to G20 finance ministers
Sunday warning that "global stablecoins could pose a host of challenges to
the regulatory community."
This, he
wrote, was "not least because they have the potential to become
systemically important, including through the substitution of domestic
currencies."
"Stablecoin
projects of potentially global reach and magnitude must meet the highest
regulatory standards and be subject to prudential supervision and
oversight," he insisted.
#UPDATE Facebook should not launch its global digital currency Libra until proper regulations are in place to handle the potential risks, the Group of Seven said https://t.co/bxC3TPd1wD pic.twitter.com/gM84FJ1yZ4— AFP news agency (@AFP) 18 oktober 2019
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