Facebook has only just revealed its far-reaching cryptocurrency plans, but Libra is already prompting global financial institutions to take action.
Central banks are reportedly becoming more interested in the idea of creating their own digital currencies following Facebook’s Libra reveal, as evidenced by new comments from the head of the Bank for International Settlements (BIS),
As the bank used by central bankers. BIS is, in the words of Quartz, among the “the stodgiest of stodgy institutions.” But BIS bank head Agustín Carstens now says central banks have to take digital currency much more seriously as a result of Facebook’s move.
“Many central banks are working on it; we are working on it, supporting them. And it might be that it is sooner than we think that there is a market and we need to be able to provide central bank digital currencies,” Carstens said in a new interview with the Financial Times.
So what is it about Libra that has captured the attention of central banks in a way that Bitcoin, Ethereum, and others have not? It appears that there are two main factors at play.
The first is that Facebook’s approach, which ties Libra’s value to established world currencies — what’s known as a stablecoin — ensures that Libra will be much more, well, stable. While Bitcoin and others are known for sometimes massive fluctuations, Libra is expected to remain relatively flat, making it more like actual “money,” as FT points out.
Also at play, though, are very real concerns that Facebook’s entry into financial services could cause it to become even more powerful – potentially at the expense of big banks.
“A big tech could be small in financial services and yet rapidly establish a dominant position by leveraging its vast network of users and associated network effects,” BIS writes in its newly-released annual report, which examines the potential impact large tech firms could have on financial institutions at length. “In this way, the rule of thumb that encouraging new entry is conducive to greater competition can be turned on its head,” the report says.
Though the BIS report doesn’t only focus on Facebook, it’s clear the social network is getting a lot of attention. In a speech on the potential risks posed by tech companies, BIS head of research Hyun Song Shin made it clear that the bank is taking Libra very seriously.
“As the digital economy expands across borders, there is a need for international cooperation on rules and standards,” Shin said. “The recent proposal by Facebook to launch a digital currency, Libra, has underscored the importance of cross-border cooperation.”
Facebook (and its other partners) still have quite a bit of work to do before Libra is ready for the masses. And no one really knows what impact it will have, or if it will even take off.
But the fact that powerful central banks are taking it seriously enough to start openly discussing the possibility of their own digital currencies underscores just how much Facebook is already influencing the traditional banking system.