Libra Flopped, But Sovereign Digital Currencies Gain Ground

Facebook's currency seems to be going nowhere fast.

Libra, Facebook’s proposed digital currency, was announced with a bang last summer but has since been whimpering a bit. The ambitious project was structured as a non-for-profit organization, governed by a charter steered by 28 members, mostly from the digital payments and online retail industries. While some international organizations praised the experimentation with new banking options, US regulators expressed concerns about unregulated banking and abuse of personal data. Critical players soon began falling away. Visa and Mastercard pulled out of the Libra Association in early October, reacting to consumer blowback and regulatory concerns.

Still, many are now are promoting federal or sovereign digital currencies. US Reps. Katie Hill (D-CA) and Bill Foster (D-IL), citing the changing profile of global payments, have approached Federal Reserve Chair Jerome Powell calling for a US digital currency.

Patrick Harker, president of the Philadelphia Federal Reserve Bank, argues that “it’s inevitable that the US Federal Reserve and other central banks will start developing their own digital currencies.” Alessandra Perrazzelli, deputy general manager of the Bank of Italy, took the opportunity of Italy’s Credit Day on October 4 to argue for the importance of developing online digital payment platforms and alternative banking services—while allowing that Libra could potentially be used to escape regulation.

Regulators emphasize compliance concerns. The US Commodity Futures Trading Commission has long held that bitcoin is a commodity and should be treated as such. Heath Tarbert, newly appointed chair of the US Commodity Futures Trading Commission, said that “If [an asset] is not a security, then it’s a commodity,” that “therefore would fall under our jurisdiction.” But CFTC regulation doesn’t have to spell the end of projects like Libra. Tarbert also noted the importance of technology innovation for an effective regulatory regime, saying, “whoever leads in this technology is going to end up writing the rules of the game.”