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Germany’s Central Bank: Gov’ts Should Be Neutral on FB’s Libra

Germany’s central bank said that potential benefits of Facebook’s Libra should be made possible despite associated risks.

Potential benefits of Facebook’s Libra should be made possible despite the existing regulatory uncertainty and associated risks, Germany’s central bank said.

In a monthly bulletin called “Crypto tokens in payment transactions and in securities settlement” released on July 22, the Bundesbank evaluated potential advantages and shortcomings of central bank digital currencies (CBDCs), as well as stablecoins such as Facebook’s widely-discussed crypto project Libra.

Regulation of Libra should be as technology-neutral as possible, Bundesbank says

In the document, Germany’s central bank stated that global innovative projects such as Libra should not be made impossible as they aim to increase prosperity and transaction costs.

However, global regulators should ensure that a number of important standards such as security, monetary and financial stability are not negatively affected, and payment transactions are not compromised, the bank wrote. The Bundesbank stressed that competition in the European payments should be ensured to stay.

At the same time, the regulation should not hinder innovation, the bank emphasized:

“ […] a government should be as technology neutral as possible, so that the benefits of innovation can be made available for the financial sector.”

The bank added that a number of important technical, organizational, and regulatory questions regarding Libra Association is still open, while there are also some speculative considerations for its potential impacts. As such, the bank stated that global supervisory authorities and central banks should keep carefully monitoring and evaluating the project.

CBDCs and stablecoins can impact central banks

In the document, the Bundesbank considered CBDCs and stablecoins as two major recent developments that can affect the role of global central banks. 

Outlining potential general advantages presented by CBDCs, the Bundesbank said that it sees no need of CBDCs for non-banking entities, as they can be used by them as a substitute for commercial bank money, which in turn could have a negative impact on credit supply.

The new crypto-related statement by the Bundesbank echoes recent reports on Bundesbank President urging global regulators to not suppress projects such as Facebook’s Libra in their infancy. Jens Weidmann reportedly stated at a G7 event that regulators should be careful to avoid inadvertently suppression of innovative concepts before all the details have been clarified.

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Bundesbank Head Says Don’t Suppress ‘Innovative Concepts’ Like Libra

Bundesbank President Jens Weidmann spoke in favor of Facebook’s Libra during a recent G7 event, a report says.

The head of Germany’s central bank Jens Weidmann spoke in favor of Facebook’s Libra during a recent G7 event.

Bundesbank head warns against suppressing innovation

Weidmann, Bundesbank President and the Governing Council member of the European Central Bank, argued that global regulators should not suppress the project in its infancy, according to an email newsletter in a shared by eToro senior market analyst Mati Greenspan on July 19.

According to the letter, Weidmann reportedly supported the Libra project during a recent G7 meeting, arguing that digital currencies such as Libra can be attractive to consumers in case if they deliver what the promise.

The head of the Bundesbank urged the global community to allow time to initiatives like this, emphasizing the nascent stage of the Libra’s development and warning against inadvertently suppressing innovative concepts before all the details have been clarified.

Previously, Bundesbank’s representative Burkhard Balz claimed that crypto does not pose a threat to financial stability.

G7 cannot accept private companies issuing currency

Meanwhile, G7 finance ministers have recently warned that digital currencies such as Libra pose risks for the world’s financial system if they are not regulated tightly. During a news conference on July 18, French finance minister Bruno Le Maire reportedly said that G7 “cannot accept private companies issuing their own currencies without democratic control.”

Weidmann’s new supporting word for Libra somewhat contradicts with some of his previous remarks about digital currencies. In late May, Weidmann expressed concerns over the potential risks of digital currencies, including destabilization of the financial system. At the time, the official said that easy access to digital currencies could speed up a collapse of lenders, which would fundamentally alter the business model of banks even in a good economic environment.

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Mastercard CEO Attacks Bitcoin, Finds Solace in Government-Backed Cryptos

Ajay Banga, CEO of Mastercard, has leveled a scathing attack on any and all cryptocurrencies that are not government mandated, calling them “junk”.

Digital currencies are almost direct competition for a company like Mastercard, and when asked his opinion on the futuristic technology, Banga was not complimentary of how things stand at the moment.

Big disruptor

Knowing that digital currencies are big disrupters in the traditional money market, traditional investors, and now even established money movers, have been scathing.

Banga was not totally against the idea of Blockchain-based money and tokenization, however, his big caveat was that it needs to be government backed.

“If the government creates digital currency, we will find a way to be in the game. We will provide rails for moving currency from customer to merchant. The government mandated digital currencies are interesting. Non-government mandated currency is junk,” he said.

Normal rhetoric

Banga’s attack on Bitcoin brought up nothing new or visionary, spurting the usual concerns without much backing or research. He criticised Bitcoin for its volatility, and use-cases for illegal activities, such as ransomware attacks:

“If I pay for a bottle of water in Bitcoin, one day it is two bottles for a Bitcoin the other day it is 9,000 bottles. This does not work. Any currency needs stability and transparency, otherwise you will get all the illegal activities in the world. Why was the ransom for the virus (wannacry ransomware) collected in Bitcoin? Why has China cracked down on Bitcoin?”

Banga seems to be another bigwig who has a stake in the game, and thus is not happy to give up that piece of pie. He, along with traditional bankers and investors, are fearful of Bitcoin as it continues to break new ground and blow precedents out of the water.

The Wall Street divide

The divide of big names on Wall Street seems to grow daily as those in the camp of Jamie Dimon, who called Bitcoin a ‘fraud’ continue to recruit those who seem to be more fearful than certain.

Meanwhile, there are those who are looking to profit, and those who are major backers, despite coming from traditional and closed-off investment channels.

Axel Weber, the former President of Bundesbank and Chairman UBS, said:

“I get often asked why I‘m so skeptical about Bitcoin, it probably comes from my background as a central banker.”

Meanwhile, Brock Pierce, Chairman of the Bitcoin Foundation, is taking these knee-jerk reactions as good things.

“When the incumbent industry is making statements like this and acknowledging you…it’s a sign that what we’re doing is working…it’s a huge validation,” said Pierce.