G7 finance ministers and central bankers warn that cryptocurrencies might “affect monetary sovereignty and the functioning of the international monetary system” (Lars Hagberg)

Chantilly (France) (AFP) – A threat to the international financial system. Not ready to be implemented. A potentially shadowy mechanism that could be exploited by criminals.

G7 finance ministers and central bankers have dealt a new blow to Facebook’s planned new cryptocurrency Libra, issuing a barrage of withering warnings about its dangers for the global economy at their two-day meeting outside Paris that wrapped up Thursday.

Facebook last month unveiled its plans for Libra in an announcement greeted with concern by governments and critics of the social network behemoth whose reputation has already been tarnished by its role in spreading fake information and extremist videos.

Ministers from the Group of Seven (G7) major global economies “agreed that projects such as Libra may affect monetary sovereignty and the functioning of the international monetary system,” France, the current G7 chair, said in a statement.

It said projects like Libra with a “global and potentially systemic footprint… raise serious regulatory and systemic concerns, as well as wider policy issues, which both need to be addressed before such projects can be implemented.”

– ‘Too many questions’ –

At the G7 meeting in Chantilly north of Paris, marked by tense talks between European ministers and the United States over taxation, the ministers were able to easily agree on the potential menace of Libra. 

The G7 members expressed “very strongly and in a unanimous way a desire for vigilance… and rapid action” said Bank of France governor Francois Villeroy de Galhau.

He denied that finance ministers and central bankers were looking to rein in any form of financial innovation but said: “It simply cannot be done in a way that harms the security of consumers and introduces uncertainty into the value of their transactions.”

“There are many questions about this project and there is no question that it can start before there are precise answers to these questions,” he told BFM Business.

German Finance Minister Olaf Scholz said all the ministers and central bankers present had serious reservations about Libra.

“We are talking about currency stability, security, data protection and democratic control,” he said.

Libra is widely regarded as a challenger to dominant global player bitcoin. Expected to launch in the first half of 2020, Libra is designed to be backed by a basket of currency assets to avoid the wild swings of bitcoin and other cryptocurrencies.

– ‘Shadowy means to pay’ –

A report prepared for the G7 by a working group headed by Benoit Coeure, an executive board member of the European Central Bank, also contained stark warnings about cryptocurrencies.

The report said such assets have “generally suffered from severe price volatility” with “limited capacity” to process transactions compared with existing arrangements. 

“Consequently, they function primarily as risky investments or a shadowy means to pay,” it said.

Such currencies posed a risk to priorities including “anti-money laundering and countering the financing of terrorism, as well as consumer and data protection, cyber resilience, fair competition and tax compliance.”

The report concluded that “significant work” by developers of cryptocurrencies was needed “before they can expect approval by relevant authorities”.

US Treasury Secretary Steven Mnuchin said his concerns about Libra and other cryptocurrencies — which he had made clear in White House news conference this month — were shared by G7 counterparts.

“The conclusion we all have is that although we believe in financial innovation, although we believe there is a need to reduce the cost of payment processing, there are very strong concerns about Libra and stablecoins in general,” he said.

Disclaimer: Validity of the above story is for 7 Days from original date of publishing. Source: AFP.