According to news published on Bloomberg on Septemeber 2, Yves Mersch, an executive board member at the European Central Bank (ECB), stated that Facebook’s proposed Libra currency could undermine the European Central Bank’s ability to set monetary policy.
You Can’t be a Central Bank
During the European Central Bank conference in Frankfurt, Yves Mersch, an executive board member, expressed his doubts about Facebook’s Libra and the risks it could present for European economic stability.
Mersch defines the project as “beguiling but treacherous”. According to him, corporate currencies have little or no chance of establishing themselves as a reliable alternative to FIAT currencies.
His arguments focus on the infrastructure that supports Libra, the Libra Association, and on the reputation of the company that “sponsors” the project, Facebook.
During his speech, he ironically pointed out that Libra comes from the same people who had to defend themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from a leak of personal data from their social media platform. A clear reference to the Cambridge Analytica case that previously hit Facebook.
Another concern Mersch raised regards the setup used by the Libra Association which effectively is a cartel of big corporations in the field of payments, technology, and telecommunication. As a result, Libra does not have any of the characteristic features of cryptocurrencies. It is not decentralized, it is not public or borderless nor censorship-resistant or neutral. It is a real attempt by big corporations to play the role of central banks.
Mersch admits that FIAT currencies are also centralized, but unlike Libra, they have a sovereign entity and a central issuance authority. His doubts, therefore, concern the reliability of the companies that should manage the project. According to Mersch, there is no guarantee that these companies will act in the interests of consumers, as they get privileged access to private data that can be abusively monetized.
For Mersch, the trust needed to make a form of currency reliable and able to win public trust is only achievable by an independent central bank.
In his speech he addresses European citizens, hoping that they will not be tempted by this project and will not leave behind the safety and soundness of established payment solutions and channels.
Fear, Uncertainty, or Doubt?
Mersch’s observations are objective and rather specific, though they are also shared by other regulators. However, it remains to be seen if there is no veil of fear in front of these remarks. During his speech, Mersch repeatedly emphasizes how private companies cannot earn consumer trust to create a sound monetary system.
This is somewhat absurd as sound money is chosen freely on the market because it holds its value across time, because it can be transferred across distance and because it can be divided into small and large denominations. Lastly, sound money can’t be manipulated by a coercive authority that imposes its use on others.
According to this definition, we can easily understand how unsound our monetary system is, and how the trust we place in central banking and governments is not earned by them, it is simply imposed. From the words of Mersch, one might think that central banks fear alternatives to the banking system as they know that if people could choose, they would certainly opt for the best alternative.