The ECB saw the launch of Libra as a threat to the future of fiat currencies

The European Central Bank (ECB) has warned that the emergence of the Libra stablecoin could put the fate of fiat currencies at stake. This is how the monetary regulator reacted to reports about the launch of a digital currency from Facebook in January 2021, writes Finextra.

Earlier on Friday, November 27, the British edition of the Financial Times reported that the Swiss financial market supervision authority (FINMA) issued permission to the Libra Association to issue a 1:1 coin backed by the US dollar.

Fabio Panetta, a member of the ECB’s Governing Council, warned at a conference organized by the Bundesbank that Libra users would face higher credit, market, and liquidity risks, and their release itself risks “potential systemic consequences.”

To mitigate Libra’s risks, Panetta considers it appropriate to oblige the Issuer to place reserve assets on the ECB deposits.

In his opinion, the appearance of Libra forces the ECB to “reinvent sovereign money.” He clarified that this implies the availability of money issued by the ECB under any circumstances in the form of a digital Euro.

“Libra may endanger monetary sovereignty. This can happen if corporate-issued stablecoins replace Fiat currencies as a means of payment. In this case, the role of money will be reduced to a” collective commodity” offered in exchange for paying a Commission or membership on the platform, ” the ECB governing Council member said.

Panetta recalled the ongoing experiments on the digital Euro issue, including cooperating with the Bank for international settlements. According to him, the work is being carried out in four directions at once.

“First, we will check the compatibility between the digital Euro and the existing settlement services of the Central Bank of Russia. Second, we will explore the relationship between DLT technologies and centralized systems. Third, we will consider the use of dedicated payment blockchains with electronic identification. And fourthly, we will evaluate the functionality of hardware devices that could provide offline transactions, guaranteeing the confidentiality,” he explained.

German Finance Minister Olaf Scholz, who also attended the conference, called on ECB officials to speed up the research pace.

“This is not a situation to watch and delay. We need to understand what we need to do with the digital Euro,” Scholz added.

Earlier in November, the head of the ECB, Christine Lagarde, said that the Central Bank’s digital currency (CBDC) launch could take two to four years if such a decision is made.

Before that, the ECB President announced a survey on the digital Euro for EU citizens. Lagarde also said that the asset would be an addition to cash, not a replacement.

In October, a working group of experts from the ECB and 19 national Central banks identified possible scenarios that would require the issuance of a digital Euro.

In May, the ECB considered three scenarios for using Libra and concluded that the number of funds allocated to the global version of the stablecoin could amount to €152.7 billion-2.93 trillion.

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