Flights of rhetoric surrounding Facebook’s Libra stablecoin and other digital currencies has reached impressive heights at times.
But former U.S. Commodity Futures Trading Commission (CFTC) Chairman J. Christopher Giancarlo took it beyond the stratosphere in an October 15 editorial, comparing the launch of an American central bank-backed digital currency to the Apollo 11 mission.
“We sent a man to the moon,” he wrote in the Wall Street Journal [subscription required]. “We can send the dollar to cyberspace.”
The biggest danger to America’s economic leadership, Giancarlo argued, is ignoring the potential of central bank-issued digital currencies.
“Whether a network of Beijing-dependent states trading a digital yuan or a commercial venture’s token backed by a basket of global currencies, a challenger to the U.S. dollar could end the delicate world economic order Americans have long taken for granted,” he said. “Complacency in the face of this threat risks lasting damage to the U.S. economy.”
He proposed building a digital dollar on a government sanctioned but privately created and maintained blockchain. “[B]anks and other trusted payment organizations would administer,” the stablecoin, he added. The U. S. Federal Reserve would back it with a Libra-style basket of U.S. dollars.
Trusting bankers to manage a big part of the economy might seem dubious. But, bankers are considered ethical and trustworthy by three times as many Americans as politicians, according to a December 2018 Gallup poll. On the other hand, that’s still only 27% of the public with faith in bankers.
Non! to Libra
If Giancarlo took his enthusiasm higher, French Economy and Finance Minister Bruno Le Maire ran hotter than ever.
Facebook’s Libra stablecoin cannot be countenanced, LeMaire declared in a Financial Times [subscription required] editorial on October 17. An early opponent, he pushed hard for France’s decision to ban Libra if it launched.
Allowing the Libra stablecoin to launch to Facebook’s billions of customers would be similar to France and the 11 original European Union countries giving up their own currencies for the euro in 1999.
‘[T]hey consciously decided to transfer part of their sovereignty to the European level,” he said. “Libra is asking states to share their monetary sovereignty with private companies.”
The minister added that regulators would not be able to cover all the risks.
Countries where people have little access to banks and use an unstable currency, “may end up surrendering their monetary sovereignty and control over their economy,” Le Maire warned. “[P]eople could simply stop using the national currency and turn to private currencies instead.”
Calling monetary policy one of a government’s “most powerful tools,” he asked, “[d]o we really want to give private interests such power?”
U.S. politicians have said much the same thing, with two senators threatening Visa, Mastercard, and four other companied in such bald and open terms that they quit the Libra Association on October 11, just days before its formal launch.
Still, Le Maire isn’t against digital currencies.
“[W]e should consider the creation of central banks’ own digital currencies,” he wrote. “We cannot let China be the only player in this field. Our independence is at stake.”
However, he said, that’s something he sees as an issue for the “medium to long term.”
Experiment without jumping in
A more balanced approach was suggested in an October 15 speech by Denis Beau, first deputy governor of the Banque de France.
After exhaustively running through the strengths and weaknesses of blockchain-based digital currencies, Beau concluded that the current “business case” for a central bank digital currency (CBDC) is “weak.”
Current cryptocurrencies are unsuitable as a replacement for fiat currency due to issues like price volatility, he said. Nonetheless, the technology can solve issues like the current cost and speed of cross-border financial transactions, he added.
Overall, Beau said he believed, “we shouldn’t refrain from experimenting the different forms of CBDC.”
That said, he cautioned that a CBDC project should not be “conceived as a means to counterbalance private initiatives such as Libra.”