Libra coin master
Because the project was launched by Facebook—an outfit with a history of skirting regulation and jumping the gun on privacy-related matters, it was also subject to a fusillade of criticism and regulatory warnings about the dangers of mixing payment and social data. Almost six months and three congressional and senate testimonies later, the dust is yet to settle. Meanwhile, Libra itself has undergone changes. Potential board members for its governing association have exited the platform.
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Regulating stablecoins isn’t just about avoiding systemic risk
The bigger issue is how do we modernize our payments system? This should be a Biden administration priority because it would help low-income people in particular. The connection between stablecoins and helping low-income people might seem unlikely because stablecoins are primarily used today to speculate on cryptocurrencies.
While their growth has led financial regulators to worry about potential systemic risks, that growth is partly because of deficiencies in our payments system, and those deficiencies are a major reason why the U. Stablecoins have potentially much broader application. Properly regulated, they are one means—although clearly not the only means—of curing some of those payment system deficiencies.
Thus, financial regulators should not only address the risks that stablecoins pose but keep their aim on that broader goal of modernizing our payments system and improving access to the financial system.
This paper discusses 1 why stablecoins are a problem; 2 how we should regulate stablecoins; and 3 the bigger picture about modernizing payments and improving financial access.
Stablecoins are digital tokens whose value is pegged to the dollar or another currency or asset. They serve to grease the wheels of the crypto industry, enabling investors to easily transfer value between different crypto exchanges and cryptocurrencies without converting back and forth into dollars. Settlement is instant, thus avoiding delays of other means of payment. Stablecoins are currently not regulated in any meaningful way. While some issuers have state licenses, these impose minimal requirements.
There are no standards requiring issuers to protect reserves or maintain liquidity. Peter Conti-Brown Tuesday, August 17, Although stablecoins are currently not used widely outside of the crypto industry, they have the potential for much broader application. That proposal provoked harsh criticism, both because of its sponsor 3 as well as its design. Central bankers feared it would undermine sovereign currencies and monetary policies 4.
The proposal has since been renamed Diem and redesigned as a set of stablecoins, each tied to an individual fiat currency. It is not operational, in part, because Facebook promised in Congressional hearings that it would not launch the idea unless regulators approved, and they have not done so. Other stablecoin issuers did not ask for permission, and their tokens have grown enormously, which has finally prompted regulators to consider acting.
The PWG does not have any power to actually do anything about stablecoins, however. Instead, Treasury staff will soon issue a report that will recommend a path forward, which could include a mix of recommendations for actions by different regulatory agencies and potentially Congress.
That type of inquiry is much needed given the lack of transparency about stablecoins. The law sets forth criteria for making the systemically important designation, which include size as well as the effect that the failure or disruption of the activity would have on critical markets, financial institutions, or the broader financial system.
Under Title VIII, the FSOC has designated two operators of business payment systems as systemically important financial market utilities, but it has never designated an activity generally nor an entity engaged primarily in retail payments. It is clearly relevant to the concern that, unless regulated, stablecoins could continue to grow dramatically. There is a good argument that stablecoins could be regulated as bank deposits under existing law.
Section 21 of Glass Steagall which survived despite repeal of much of that law prohibits anyone from receiving a bank deposit unless subject to regulatory oversight under specific exceptions. There is also the option of regulating stablecoins as securities or as money market funds.
Securities and Exchange Commission chair Gary Gensler has suggested he might move to do so and has referred to the PWG report as something that his staff is working on with Secretary Yellen.
Although I have compared stablecoin risks to those of money market funds, I do not think that is the best way to regulate them. They are fundamentally payment devices and not investments. Another option is to recommend to Congress that it enact new authority. Various bills have been introduced to address stablecoins, including one that would limit issuance to entities that are banks. But at a time when the Biden administration and Congress already have many weighty legislative priorities, rapid enactment of legislation seems doubtful.
The path chosen may affect the comprehensiveness of the regulatory framework that can be created, though we should put in place what we can now and add to it later if necessary. Ideally, we need a framework that includes not just traditional prudential regulation standards, but also operational risk measures, consumer protection standards, and standards to achieve interoperability. Regulators should require that reserves are invested in bank deposits, Treasuries, or other safe, liquid assets, and that there are liquidity requirements.
If the Federal Reserve were to broaden who is eligible for a master account, then stablecoin providers which are not banks could park reserves at the Fed, an option some would argue is even safer because it would avoid the operational risk of a particular bank.
Regulators should require a capital buffer even if reserves are invested in cash or other safe assets. That is because capital can protect against other types of losses, such as operational ones.
Regulators may also want to ban the payment of interest to discourage users from maintaining large deposits. That plus requiring reserves to be invested in cash or other safe assets would likely mean that stablecoins would be attractive only as payment instruments, not as investments.
A prohibition on interest would put stablecoins at a disadvantage relative to bank deposits if interest rates rise, but regulators might desire that in these early days of the industry. There should also be operational resilience standards. This is a huge area of risk often overlooked in commentary that focuses on stablecoin financial risks.
Stablecoins run on decentralized blockchains and smart contracts. The software for the various layers of operation could have flaws or could be vulnerable to attack. The largest stablecoins run on multiple blockchains but are separate and distinct tokens on each such blockchain, as a recent post by Neha Narula of MIT explains. That means risks associated with the integrity and reliability of the blockchains and software are multiplied.
In addition, a stablecoin could become too large in relation to the capacity of the blockchain itself. Federal Reserve staff are presumably becoming knowledgeable about these issues through their collaboration with MIT to design a hypothetical central bank digital currency platform. The Consumer Financial Protection Bureau may have a role to play in this regard.
Finally, we may want to create standards that ensure interoperability between different stablecoins to avoid a fragmented system. One other advantage of an FSOC process is that the presence of representatives of state banking and securities regulators on the council may help figure out how state regulation of stablecoins—which exists, but is quite limited—should mesh with federal standards.
But whatever path is chosen for going forward, the goal should be not just to regulate risks of this particular innovation but to address deficiencies in the payment system that are a principal reason for the growth of stablecoins.
While stablecoin usage has largely been in the crypto industry, their impact has already been broader. Both stablecoins and CBDCs are ways to remedy deficiencies of our payments system and potentially enhance financial inclusion. As financial regulators address the risks of stablecoins, they should articulate that larger goal of modernizing our payments system and increasing access to the financial system.
Banks handle the vast majority of U. But the system is characterized by relatively high cost, weak competition, and insufficient innovation. Americans pay significantly more than Europeans for payment services, particularly because of high fees paid for credit cards. The system is also slow relative to real-time payments increasingly common in other countries.
Most Americans might say the system is fine. Nor is anyone who has some savings likely to be inconvenienced if a check takes a couple days to clear. But the flaws of the system weigh much more heavily on those in lower-income brackets. The latter term means they have a bank account but use nonbank options like check cashing services or payday lenders, often to avoid even more expensive bank overdraft charges.
Moreover, as Aaron Klein has written in an excellent new paper , the key issue is access to digital money, and low-income people are at a distinct disadvantage in that regard. Stablecoins are one way to speed up payments, as are CBDCs. The original Libra proposal focused on its potential financial inclusion benefits. While some might regard that as window dressing by Facebook, the fact is that slow and expensive payments burden low income people in many ways. A retail CBDC could be a means of providing bank accounts as well.
But there are many design choices for CBDCs. One option is to create no frills, minimal retail accounts with deposit limits, which might help the unbanked and underbanked without draining away significant deposits. We could also mandate banks to provide such low or no-cost accounts. These are not the only solutions, and some will argue that existing private and public sector initiatives are sufficient to modernize the system. The real issue is increasing competition—either from new private sector entrants or effectively from the government through a CBDC.
The big picture is that stablecoins have grown enormously because they offer distinct advantages in speed. Banks have not sufficiently modernized the system nor addressed financial inclusion.
Changes in regulation may be needed to permit greater competition and facilitate innovation. The Biden administration should make this a national priority. Timothy G. Financial Regulation Can fintech improve health? Aaron Klein. Financial Regulation Where are the Biden financial regulators? Peter Conti-Brown. Crawford and L. Post was not sent - check your email addresses! Sorry, your blog cannot share posts by email.
Libra, explained
The Senate Banking Committee staff reached out last week regarding Facebook's Libra project, pursuant to my recent Forbes. During a conference call, they indicated interest in receiving formal written testimony from me. Here it is. A pdf version, with citations, is available here. Washington, D. I appreciate the opportunity to submit the following statement for your consideration, and would like to thank you and the members of the Senate Committee on Banking, Housing, and Urban Affairs. I am purely a volunteer in both roles.
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Libra Coin: The Good, The Bad and The Unknown
The project that was pushed back in April after regulatory banks raised concern that it would threaten financial institutions, monetary policy and privacy, is trying to show its organizational independence with this move of changing its name. Stuart Levey, CEO of the association behind the planned cryptocurrency told Reuters that the rebranding is a part of their move to lay focus on a simpler and revised structure. Libra, now Diem, was initially meant to be a single coin pegged to multiple currencies that could be traded in place of it. Later it was changed to multiple coins with each backed by a different currency.
7 things you need to know about Facebook Libra
This led to a domino effect with the project undergoing various changes in scope, objectives and even the name which was recently changed from Libra to Diem. Initially set to be launched last year, the project has now shifted its launch date to So what exactly happened to Libra? What was the real purpose of this initiative? Did Libra deliver on its promises?
After PayPal, who will leave the Libra project?
There will be an electronic currency, and it will be universal, and we must accept that fact. This article focuses on Facebook's new digital currency, initially called "Libra" and renamed in December "Diem", that has been designed and proposed by the Diem Association formerly the Libra Association. It briefly reflects on the historical meaning of money and currency, as well as "local currencies" viewed as precursors to the new "digital currencies" or "cryptocurrencies". The paper presents a general overview of the Diem project, particularly from the perspective of financial theory and practise. It looks specifically into Diem's business model and analyzes the project's planned and potential revenue streams, according to official documents published by the Diem Association. The research identifies potential obstacles and hurdles this digital currency would since it has not happened yet face on launch day and assesses whether the project is feasible in its current form. In the authors' view, although some early concerns were addressed in the Diem White Paper 2.
Signing out of account, Standby Not at all like Bitcoin, Libra's worth is attached to an officially sanctioned money like the dollar. Facebook has at last uncovered the subtleties of its digital currency. Libra, which will give you a chance to purchase things or send cash to individuals with almost zero charges and will be decentralized.
A new story trailer and further information pertaining to online mode in Soulcalibur 6 was made available this week during gamescom. The trailer for the second story mode in Soulcalibur 6, Libra of Soul, was released during gamescom this week. Bandai Namco also announced Tira would be included as a bonus character for Season Pass holders. Libra of Soul will accompany the first story mode, Chronicle of Souls. Players will be able to create their own custom fighter in this mode, using the creation tools before setting out to gather Soul Edge shards. Along the way, players will come up against both characters from across the main storyline, and other custom warriors created by the community.
Jul 15, Compliance Updates , iComply Insights. After receiving substantial pushback from U. In an updated whitepaper, Libra shed light on changes to its compliance framework. Facebook users, regulators, digital currency service providers, central banks, and financial institutions will all be impacted by this shift in direction. Instead of a fully decentralized single cryptocurrency, Facebook issued a blogpost describing new changes to appease regulators and politicians:. The first of these changes will undoubtedly favor the countries that are adopting digital versions of their national currencies. These updates—as well as the fact Facebook is moving forward with this project—means we could see unprecedented access to digital currency on a global scale.
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