The Bundesbank has let us know that they’re OK with the idea of Facebook’s Libra project. With the one important caveat, that we don’t lose the benefits of money laundering regulations in the process. Which is a problem as I at least am entirely convinced that Libra is an attempt to make an end run around such regulations.
On the basics of course the Bundesbank is entirely correct:
The Bundesbank in Frankfurt, the most powerful member of the European Central Bank, said it was “fundamentally to be welcomed” that libra and its rivals would force traditional banks to adapt and overhaul their often slow and expensive payment systems.
Yep. International money transfer is howlingly expensive and it shouldn’t be. Vast portions of the world would be richer if it weren’t. So, good there.
It predicted that libra would initially benefit people who wanted to move money swiftly between countries over Facebook’s messaging apps without having to pay fees of up to 7 per cent, particularly in parts of the world without easy access to bank accounts.
However, they also worry that:
“When it’s not clear — or at least it cannot be discerned — who lies behind which transactions, or who the recipient of certain transactions is, that’s problematic, also in regard to combatting those who finance terrorism.”
However, the bank also said it would “closely monitor” the risks that the libra payment system could be used for money laundering or financing terrorism,
Which is what the problem is. As I’ve said elsewhere:
Facebook has announced Libra, the cryptocurrency that isn’t really a cryptocurrency – and inquiring minds would like to know why. The answer? It’s probably an end run around regulation. This could be a good or a bad thing, for the regulatory mess in this area is significant. Moving fast and breaking things might actually be the correct way to cut through the Gordian Knot.
Here’s the point. Those money transfers cost a fortune because of the know your customer, understand the source of funds, rules. These apply if you’re shifting money around. But what if you’re not shifting money around? What if you’re shifting some entirely made up accounting unit – Libra? Therefore the money transfer rules don’t operate.
Such regulations will probably apply to anyone buying into, or cashing out of, Libra. But once inside the system, it is likely, the way the regulations are currently written, that transfers will be free of the costs that drive transfer fees up to those 8% and 10% levels.
That’s what I think the play is here. Time will prove me right or wrong of course. My intense suspicion is that if the varied authorities simply said “All standard money transfer regulations will apply to Libra to Libra transactions” then that would be the last we’d hear of the project.