ECB warns the future of money is at stake as Facebook preps January crypto launch

While any increase in dollarization (via vehicles such as Libra's stablecoin) is bad for the market overall, including for Euro-based countries, the impact on currencies under greater stress is far more important.

Countries in Central and South America, Eastern Europe (including Poland and Hungary), along with all of Africa and non-China Asia, are at high risk of currency turmoil if Libra is able to be bought by their citizens. The loss of control of their government's money supply will be hard to reverse - and even more convoluted if and when China opens up yuan-based CBDCs. 

As being said here, urgent action is needed - not in number of years but numbers of weeks - but mainly by central banks in the most at-risk countries - starting with remittances and aid payments. 

Action to block Libra is needed this year, not later. The ECB could be critical in protecting the non-Euro EU 27 countries and currencies.

Kind of predictable to see ECB "surprised" again. But definitely this might turn into a monetary revolution that destabilizes the countries' currences, as we know them, in many geographies. 

The Facebook Libra is not a "currency", it is prepaid value in USD where the holder would have a transferable claim on the FB Libra company. The company offers to exchange the PP value to other currencies.The easiest way to combat phenomenons like Libra is a small development of the AMLD 5. It contains KYC rules applicable for many other establishments than banks and limits the usage of anonymously held prepaid value to 150 Euro. If the Libra is regarded as a "payment system" the company needs to meet the PSD2 requirements for payment institutions and again the AMLD5 is applicable. The challenge for the ECB and other central banks is that in a global world with globally accepted  instant payment tools in every mobile handset makes the central bank more or less redundant for issuance of money. Central banks should police the rules (AMLD5, PSD2, the banking legislation rules on deposit taking institutions...) and focus on the stability of the economy in general and realize that the demand for banknotes and coins will be reduced in every country in the world. In countries with instable curencies people already look for alternative safe-havens( South-America and the US Dollar...) to avoid their funds being lost in unstable central bank currency. The best way for the ECB to stay relative in the future is to keep the Euro stable and see to that payment institutions in the EU offer relevant, secure and convenient payment services to coprorates and private persons. 

If you see the ECB as solely responsible for euro-based countries, then 'stability' is a reasonable target, although against what? The role of the USD is under some pressure - and could be further undermined by PBOC actions now or in the future. 

But the role of the ESCB is broader; do you suggest it remains unconcerned about potential instability of the non-euro currencies? My comments above refer to these currencies, rather than the euro, but I agree the real concern is farther afield, where African, LatAm and Asian currencies are more in danger.

Do you not agree that the Facebook/ Whatsapp membership, of over 2 billion worldwide, could be enticed (by incentives, discounts etc.) to switch to the Libra structure from their domestic fiat currencies, if they get the option? Particularly if the recession continues in its current form - with its greater impact on LMICs and their currency values?

To bring it back to where you seem to be looking at this in solely euro-based countries interests, what do you see as the likely impact on migration from the Middle East and North Africa if those countries have currencies in freefall? 

Am I being over-dramatic? Can Facebook be expected to behave in a manner that fits with the compliance structure you propose? Who knows - but should we be taking the chance?       

All the non-Euro member states in the EU have an obligation to join the Euro except Denmark who has an excemption. Unless they have more stable national currencies they should join! Denmark has however pegged its DKK to the Euro so they are half-in. If you have your income and assets (for instance real-estate) and liabilities (mortgage) in a stable "fiat" currency like the Euro it would for risk management reasons be ill-advised to exchange your bank account holdings to a copy-cat "fiat"(USD) make believe asset that is backed up by the promises of unliable FB owners on the stock exchange. The only reason for EU area users would be for smooth payments in a FB/Libra closed loop environment if the payment industry does not offer convenient and secure instant payments. Many of the ME and African countries are already failed states in multiple ways on top of the currency issue and people already seek a better future in Europe and that difficult issue is to be managed by the EU Council and Commission where there is room for much improvement. Cannot see anything more "fiat" than libra. 

Awesome comments. Thanks!

Great read! Despite the ECB's readiness to respond with a digital solution to Facebook's efforts, it shows again that innovation is happening somewhere else and that classic banks are rather having a passive strategy which consists in reacting rather than pushing ahead the future of banks and fostering fintech innovation. As it's said in the article "the impending revolution in payments "requires us to stand ready to reinvent sovereign money"." When will banks start being the ones that revolutionize an outdated system rather than the ones being revolutionized? 

Yahya, I agree that commercial banks are generally slow to move forward on technological matters, not least because of legacy systems that require an enormous effort to change. However, I think we are looking here at what central banks - and local regulators - are prepared to authorize or, in the case of CBDCs, do.

As  Mr. Panetta says (in the article) there is an awareness of the risks, but these risks are not primarily for the ECB, at least at this stage. It is the central banks of remittance recipient countries that should act with urgency, if the parallel currency rates in operation are not to create disruption and large scale switching of bank account funds from the local fiat currencies to stablecoins (or even BTCs) in other currencies. 

Is there an answer? Yes, but it requires an international cillective response - and that is where the struggle will take place. 

Wonderfully clarified, dear Christopher! It definitely makes sense. Thank you very much!