Facebook’s wounded Libra Association formally voted itself into existence on October 14, electing a board and choosing officers.
Monday’s ceremony was overshadowed by the loss of seven important original members, six on them on the previous Friday.
Mastercard, Visa, payment processors Stripe and Mercado Pago, eBay, and online travel company Booking Holdings all pulled out under tremendous political pressure in the U.S. They joined PayPal, which dropped out a week earlier.
It wasn’t just U.S. regulators that are the project’s problem.
Libra’s potential impact is so great that an important international financial regulations body has recommended that all “global stablecoins” be considered a threat to world’s financial stability.
This would reverse a position taken just four months ago by the G20.
Libra Association limps home
The Libra Association’s signing ceremony in Geneva, Switzerland, included 21 members, seven fewer than when the project was announced on June 14.
Of these, only three remaining members can be said to have genuinely broad international reputations. These are the ridesharing firm Uber, streaming music service Spotify, and telecom Vodaphone. And the latter is not in the U.S. market.
In a statement, the Libra Association named five members and two staffers to the association board.
It also confirmed the positions of three staff members. Bertrand Perez remains COO and acting managing director, and will be the board chairperson. Dante Disparte, head of policy and communications, was named deputy chairperson. Kurt Hemecker remains head of business development.
The board members are: Matthew Davie of Kiva Microfunds, Patrick Ellis of PayU, Katie Haun of Andreessen Horowitz, Wences Casares of Xapo Holdings Limited. And of course, David Marcus of Facebook-owned Calibra, Inc.
In a statement, Huan, a general partner at venture capital firm Andreessen Horowitz, said the firm had reaffirmed its commitment to the Libra project.
“Given the project’s scale and ambition, there are still a number of important challenges to overcome, including regulatory compliance,” she conceded. “We will work with the Association, regulators, partners, and developers to resolve these questions and bring this vision to life.”
Libra is a force for good
The board members largely reiterated that Libra’s main goal is to create a payment network that can lower the cost of financial services, particularly to the poor and unbanked who often lack access to traditional bank accounts.
“Today represents a major step forward in the movement to democratize access to new financial infrastructure,” said Joe Lallouz, CEO of Libra Association member Bison Trails, a blockchain infrastructure firm. “We are deeply committed to building a decentralized future that is financially inclusive for all.”
Lallouz, who’s company provides blockchain infrastructure, also noted the importance of working with regulators and policymakers “to ensure the Libra system’s launch in a secure and responsible manner.”
The FSB report made the same point. Stablecoins and similar FinTech products “can deliver significant benefits to the financial system and the broader economy,” it noted.
Specifically, the report called cross-border payments and remittances by workers from developing nations that have gone abroad to earn money.
The Facebook factor
The problem is, Facebook said it planned to make the Libra stablecoin immediately available to 2.7 billion used of its Messenger, WhatsApp, and Instagram users, making it a game changer. Creating a non-profit governing association in which Facebook would eventually hold just one of 100 votes did not assuage fears.
Facebook’s awful privacy record has contributed to politicians and regulators’ concerns.
Overcoming those concerns will take some doing. A largely hostile House Financial Services Committee recently pressured Facebook CEO Mark Zuckerberg to testify on October 23. He had tried to leave Marcus the social media giant’s face of Libra.
Two U.S. senators threatened Mastercard, Visa, and Stripe with increased regulatory scrutiny of their whole business if they joined the Libra Association. That was considered the final straw that caused the three payment firms to withdraw. And, France and Germany have already vowed to block Libra in their countries.
Libra is a threat
The warning that Libra could threaten the world’s financial stability came from the Financial Stability Board (FSB) in a preliminary report to the G20 issued on October 13. The FSB is an international organization focused on financial regulation.
The report noted that in June the G20 declared that “crypto-assets do not pose a threat to global financial stability at this point.”
While never mentioned by name, it is apparent that Libra changed that calculation.
“However,” the FSB report continued, “the introduction of ‘global stablecoins’ could pose a host of challenges to the regulatory community, not least because they have the potential to become systemically important, including through the substitution of domestic currencies.”
The G7 has turned the issue over to the Financial Stability Board (FSB) for further review.
Over the weekend, BBC News reported that a draft report by the G7 recommended that no stablecoin project should be allowed to begin until strict regulations are in place.
“The G7 believe that no stablecoin project should begin operation until the legal, regulatory and oversight challenges and risks are adequately addressed,” it said.
What this would mean for existing stablecoins like Tether and Paxos is unclear.
Not up to par
Treasury Secretary Steven Mnuchin believes that Visa, Mastercard, and eBay dropped out of Facebook’s Libra cryptocurrency project for a simple reason.
“I think they realized that [Libra is] not ready, they’re not up to par,” Mnuchin told CNBC on October 14. “I assume some of the partners got concerned and dropped out until they meet those standards.”
Noting that the Financial Crimes Enforcement Network (FinCEN) is under the Treasury Department, Mnuchin said it had met with those companies “multiple times,” since Libra was announced.
“We’ve been very clear with them,” he said. “[If] they don’t meet… our money laundering standards… we would take enforcement action against them.”
The rest of the Libra Association members are:
- Breakthrough Initiatives, L.P.
- Coinbase, Inc.
- Creative Destruction Lab
- Farfetch UK Limited
- Kiva Microfunds
- Lyft, Inc.
- Mercy Corps
- Ribbit Capital
- Thrive Capital
- Union Square Ventures
- Women’s World Banking
- Xapo Holdings Limited
The Libra Association said that 1,500 companies have expressed interest in joining.