- Facebook introduced its vision for a global cryptocurrency called Libra two months ago, and since then, regulators have piled criticism onto the project.
- Privacy regulators, central bankers and finance ministers have voiced concerns with the proposed Libra cryptocurrency because it could, at least in theory, drastically change, or even undermine, their jobs.
- Facebook launched Libra in collaboration with 27 other companies in June.
Facebook introduced its vision for a global cryptocurrency called Libra two months ago, and since then, regulators have piled criticism onto the project. They may have their own reasons.
Global privacy regulators, central bankers and finance ministers have voiced concerns with the proposed Libra cryptocurrency because it could, at least in theory, drastically change or even undermine their jobs. As a result, investors, crypto enthusiasts and regulators themselves say Libra has raised the stakes for financial authorities, forcing them to take a more serious look at digital currencies.
"Ten years ago, regulators didn't care about bitcoin," said Ido Sadeh Man, an Israeli entrepreneur who is launching a digital coin called Saga, in an interview with CNBC's Beyond the Valley. "It was a niche. They were all sure that it was going to go away and vanish on its own. That's not the case anymore."
Facebook launched Libra in collaboration with 27 other companies in June. The digital currency would be overseen by an independent nonprofit based in Switzerland called the Libra Association, though many details about how that organization would operate remain unclear. The goal of the project, Facebook says, is to provide a fast, low-cost way for people around the world to transfer money, especially those who don't have access to traditional banking services.
In the past, U.S. and international regulators were measured in their response toward cryptocurrencies such as bitcoin. With Libra, they have been quick to raise concerns.
The same day Facebook debuted the Libra project, Bank of England Governor Mark Carney said it would be "subject to the highest standards of regulation." Federal Reserve Chairman Jerome Powell followed suit a few weeks later, listing concerns including privacy, money laundering, consumer protection and financial stability. Since then, European Central Bank President Mario Draghi, U.S. Treasury Secretary Steven Mnuchin and FTC commissioner Rohit Chopra have raised similar worries.
The ECB declined to comment further but pointed CNBC to a letter signed by Draghi and published July 25, saying "stablecoin initiatives must ensure public trust by meeting the highest regulatory standards and be subject to prudent supervision and oversight." The FTC declined to comment while the Bank of England, Federal Reserve and U.S. Treasury did not immediately respond to CNBC's request for comment.
Regulators are worried on several fronts — all of them tied to Libra's potential for going mainstream, according to Zennon Kapron, founder and director of consultancy firm Kapronasia.
"First of all, it's Facebook behind it, and so Facebook sets up the Calibra wallet they've been talking about — which would presumably interface with WhatsApp, Facebook Messenger," Kapron told CNBC's Beyond The Valley. "Already, they have a couple billion people in their network."
Unlike bitcoin and other cryptocurrencies, whose appeal is limited to a subset of people, Libra has the potential to reach billions of users in a relatively short period of time. "I think that's really what's gotten the regulators quite in a furor about what's happening around Libra, as opposed to bitcoin," he said.
Governments could potentially lose "the ability to control monetary policy," Kapron said. "Right now, the U.S. dollar has a lot of power, and the U.S. government has a lot of power because oil is priced in U.S. dollars. And, the U.S. government controls which banks can interact with the U.S. dollar, so using that sphere of influence, they're able to really control the direction of global economics and the global political situation."
With Libra, that control slips, Kapron said.
In a statement to CNBC, the Libra Association said: "The Libra Association maintains that financial inclusion, regulatory harmony and consumer concerns are not competing objectives, but rather work in lockstep with the Association's goals of offering a simple global currency and financial infrastructure that empowers billions of people. The lead up to the launch of Libra in 2020 builds in the time for conversations with regulators and policymakers around the world to take their questions into account."
Some investors say the attention Libra has received from regulators bolsters the case that cryptocurrencies will soon become part of the financial system.
"We find this dynamic interesting and believe internet investors should continue to monitor the shift of developer talent and VC (venture capital) money into the Crypto community, as well as new projects coming through the pipeline," RBC analyst Zachary Schwartzman said in a note Thursday.