G7 finance ministers meet in France
Global finance chiefs found common ground in their fear of Facebook Inc.’s Libra initiative as they met to discuss more contentious issues from digital taxation to the economic outlook on Wednesday.
“Libra is on everyone’s mind,” German Finance Minister Olaf Scholz told reporters at the gathering of Group of Seven counterparts near Paris. Bruno Le Maire, his French host, said that a private company shouldn’t “have the possibility to create a sovereign currency.”
The remarks at the Chateau de Chantilly reveal the extent of the international backlash building against the proposed digital currency, just as U.S. lawmakers join the bandwagon of criticism against Facebook in Congressional hearings this week. Central banks have individually treated Libra with growing caution since its planned launch was announced on June 18, though they have yet to unify with a coordinated response.
“Finance ministers and central bankers all have serious concerns on whether all rules have been followed and if regulations need to be changed to guarantee financial stability,” Scholz said. “Swift action is required” to address the Libra issue, he said.
Le Maire, the French finance minister, has put the matter at the center of the agenda of the G7 gathering. Regulators are worried about Facebook’s capacity to leverage its advanced technology and gigantic customer base to create a currency that would challenge the sovereignty of nation states.
Libra might be one of the few areas of agreement as officials clash over most other aspects of the international economic order. France is at odds with the U.S. on a French plan to impose a tax on digital revenues of major companies, another theme at the G7.
On Libra, U.S. Treasury Secretary Steven Mnuchin has already bashed the Facebook proposal, and President Donald Trump criticized its effort via Twitter last week. Federal Reserve Chairman Jerome Powell told lawmakers this month that he has “serious concerns’’ about the token and cast doubt on the company’s timeline for launching it by next year.
“I fully share the concerns expressed by Mnuchin,” Le Maire said. “We cannot accept any exchange currencies with the same kind of power and same kind of role as a sovereign currency.”
Some policy makers have said Facebook’s potential to build a cheap, fast international payments system would highlight their own deficiencies. Immigrant laborers, for example, can face high and frequent costs sending funds back to their families in their country of origin.
“It’s true today that some cross-border payments are too complex, too slow and too expensive,” Bank of France Governor Francois Villeroy de Galhau said answering questions on Libra at committee hearing at the French Senate last week. “There is a call to improve cross-border transfers.”
Le Maire and Villeroy have asked European Central Bank Executive Board member Benoit Coeure to prepare a report on Libra, a summary of which is expected to be published Thursday.
“I can understand why finance ministers and monetary authorities might have reservations” about Facebook, given its history, said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington D.C. The question is “are they the right entity to do it?”
Not all officials attending the G7 meeting have been as allergic to Facebook’s initiative. Bank of England Governor Mark Carney, a former head of the Financial Stability Board, has said that his institution approaches the matter with “an open mind but not an open door,” while U.K. Chancellor Philip Hammond has said that “if it works, and it’s properly regulated, it could be transformative.”
International Monetary Fund acting chief David Lipton, speaking on the eve of the gathering in France, cautioned that if Libra is “squelched” based on a simple view of the risks, that might block innovation.
“You never know at the beginning how valuable a technology will be,” he said on Tuesday. “It requires experimentation and adaptation over years and often decades.”