Europe wary as Facebook takes up cryptocurrency challenge

European financial leaders on Tuesday vowed vigilance after Facebook announced it was diving into the cryptocurrency market, as analysts warned the social media giant could face major regulatory questions. French Finance Minister Bruno Le Maire, whose government initiated a new tax on digital giants like Facebook that has angered the United States, said such digital money could never replace sovereign currencies of governments and insisted Facebook’s plan required guarantees. Bank of England Governor Mark Carney said Facebook’s new currency would have to withstand scrutiny of its operational resilience and not allow itself to be used for money laundering or terror financing.

Facebook and some two dozen partners on Tuesday released a prototype of a cryptocurrency called Libra, whose rollout as global digital money is expected next year.

“If Facebook wants to create an instrument for transactions, why not? But there is no question that this can become a sovereign currency,” Le Maire told Europe 1 radio, saying a “limit” had to be set.

“It cannot and must not become a sovereign currency, with all of attributes of a currency”, such as the capacity to issue sovereign debt and serve as a reserve currency.

“The aspect of sovereignty must stay in the hands of states and not private companies which respond to private interests,” Le Maire added.

There need to be “guarantees” so that “this transaction instrument is not misused, for example, for the financing of terrorism or illicit activities,” he said.      

With France currently holds the G7 presidency, Le Maire said he had asked the group’s central bank governors to prepare a report by mid-July to lay out the guarantees required from cryptocurrencies.

Speaking in Portugal, Carney echoed Le Maire’s concerns, saying the new cryptocurrency would require the strictest regulation.

“Anything that works in this world will become instantly systemic and will have to be subject to the highest standards of regulation,” Carney said, Bloomberg reported.

“So open mind, but not open door,” he said, Libra will be introduced in the wake of other cryptocurrencies such as bitcoin but aims to avoid the roller-coaster valuations that have attracted speculation and caused ruin.

Cathy Mulligan, a cryptocurrency expert at London’s Imperial College, said Facebook faced a huge challenge to win regulatory approval for such a service in its markets.

“Financial services operators act to protect consumers first—this is not something that Facebook are known for so we can expect difficulties for them,” she told AFP.

Mulligan said that if Facebook wished to act like a “nation state” it would have to expect “governments to react quite strongly”.

She added given that Facebook has no track record in fiscal and monetary policy, “we can expect regulators to take a strong approach to this.”