Libra, Facebook’s digital currency project, received a boost yesterday in the wake of last week’s exodus of several high-profile backers with a leading central banker hailing the potential benefits of a global digital currency.
Mark Carney, governor of the Bank of England, said he favoured a global digital currency, backed by a basket, as a means of reducing the world’s reliance on the dollar and for making global payments cheaper and more efficient.
Carney said he favoured a public currency, but praised Libra for exposing the shortcomings of the status quo, saying: “[Libra] has put these questions on the table — why doesn’t a public infrastructure exist yet? At the core, a central bank digital currency should be there. Which raises the question of a horse race with other ways to reform the payment architecture.”
David Marcus, CEO of the Libra Association made up of supportive companies, said: “It takes time to address those regulatory concerns, but once that’s done, we expect to see more banks and traditional financial services firms join the association.”
Facebook’s ambitions for Libra were dealt a blow last week when it lost several of its highest profile backers including Visa, Mastercard and Paypal in the wake of a critical hearing in front of a committee of the US House of Representatives.
However, Facebook’s reach means that it remains the digital currency project with the best chance of global adoption.
The concerns over Libra have been offset by enthusiasm for the advantages central bank digital currencies could bring in terms of expanding financial inclusion. Jingdong Hua, treasurer of the World Bank, said: “A central bank digital currency transformed financial inclusion in Kenya. The M-Pesa brought financial participation from under 20% to over 90%.”
Hua pointed out that a digital cross-border transaction system offered savings to some of the poorest members of society. “A maid working in Hong Kong sending money home to the Philippines might pay 5% to 7% on her remittances. By removing those costs, a digital currency can provide a real, tangible benefit.”
New risks
But some analysts said a global digital currency, whether private or created by a public entity, created new risks. Sonja Davidovic, an IMF economist and digital advisor, said that economies that adopted a global digital currency would face a risk of what she called “libra-isation”, analogous to dollarisation, which could cause dangerous depreciation to emerging market currencies.
“In a sense, it is even more dangerous than dollarisation, because dollarisation is constrained by the ability to get hold of dollars,” she said. “With Libra, there would be no such barriers, and it could have a huge effect very quickly.”