G7 finance ministers flag cryptocurrency risk

The meeting of G7 finance ministers has warned of the risk of cryptocurrencies destabilising the global economy and undermining fiat currencies

In a communique issued at the end of the meeting in Chantilly, France last week, ministers and central bankers called out Facebook’s new Libra currency by name, saying that ‘stable coins’ and other financial products being developed by tech companies to work as global currencies raised ‘serious regulatory and systemic concerns’.

These issues ‘need to be addressed before such projects can be implemented’, G7 ministers said.

The statement echoed the words of French finance minister Bruno Le Maire who called for urgent action concerning Libra and said that the ‘sovereignty of nations cannot be jeopardised’.

The German finance minister Olaf Scholz questioned whether Facebook had thought through the impact Libra would have on the stability of the international financial system and highlighted concerns about data security. Facebook was fined $5bn (£4bn) recently by the US Federal Trade Commission (FTC) for data security failures around the Cambridge Analytica scandal.

The meeting said the initiatives and their operators would ‘need to meet the highest standards of financial regulation, especially with regards to AML/CFT [anti-money laundering/counter-terrorism financing], in order to guarantee they do not affect the stability of the financial system, or consumer protection’.

There were also gaps in the global regulatory system that would need to be addressed, it said.

Libra will be launched in 2020 with a potential user base of 2.2bn people who use Facebook and its communication apps, Messenger, WhatsApp and Instagram. Anyone with a smartphone will be able to send and receive Libra, the company said, adding that Libra would benefit people and businesses around the world who don’t have bank accounts.

‘Almost half of the adults in the world don’t have an active bank account and those numbers are worse in developing countries and even worse for women. The cost of that exclusion is high — approximately 70% of small businesses in developing countries lack access to credit and $25bn (£21bn) is lost by migrants every year through remittance fees,’ the company said.

G7 finance ministers agreed that cross-border payment systems need to be ‘significantly improved and less costly for consumers’, but said that Libra and other schemes could affect monetary sovereignty and the functioning of the international monetary system.

However, the Financial Stability Board (FSB) has said cryptocurrencies do not pose a material risk to global financial stability but warned that authorities in different countries are taking different approaches to regulation.

The G7 has a working group on digital currency, coordinated by the chair of the Committee on Payments and Market Infrastructures Benoît Cœuré, which presented its preliminary report to the meeting. It is working with the G20, the Financial Stability Board and other standard setting bodies and is expected to report in October in time for the IMF-World Bank annual meetings.

Tom Reeve | 23-07-2019

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