G7 nations wary of Facebook's 'Libra' cryptocurrency plan
July 17, 2019
Facebook's plan to introduce its own cryptocurrency has come under sharp criticism from many countries. The social media giant announced in June that it would roll out a new digital currency, called Libra, from 2020.
Image: picture-alliance/AP Photo/M. Euler
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After US lawmakers grilled Facebook on its ambitious plan to create a financial ecosystem based on a digital currency, the G7 group of world's most developed economies also expressed their concerns about "Libra" on Wednesday.
The G7 bloc consists of Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States.
"On Libra, we had a very constructive and detailed discussion with a very large and shared consensus on the need for action," a French official told the AFP news agency on condition of anonymity, after a meeting of G7 finance ministers in Paris.
"Concerns (were) expressed by all the participants about the current situation and the need to act quickly," the official added.
G7 finance ministers reportedly insisted that tough regulatory problems needed to be worked out before Libra's introduction.
A G7 task force looking at cryptocurrencies like Libra would likely to include a broader range of regulators beyond the bloc, according to the Bank of Japan governor.
A cryptocurrency, like Bitcoin, is designed to decentralize control and serves as an alternative to traditional banking systems. It is a digital asset that works as a medium of exchange using strong cryptography to secure financial transactions, control the creation of additional units, and verify the transfer of assets.
Facebook's cryptocurrency plan has been met with intense skepticism, not only from data protection activists, but also from politicians and financial regulators. Their skepticism is fueled by the fear that widespread adoption of the new digital currency by the social media giant's 2.38 billion users could upend the financial system.
In recent days, US President Donald Trump and Treasury Secretary Steven Mnuchin have also voiced concerns about the project.
Trump tweeted last week that the new digital currency "will have little standing or dependability." Mnuchin said on Monday: "They're going to have to convince us of very high standards before they have access to the US financial system."
On Tuesday, the Senate Banking Committee questioned David Marcus, Facebook's top executive overseeing the project, on issues ranging from how Libra could affect global monetary policy to how customer data will be handled.
"Facebook has demonstrated through scandal after scandal that it doesn't deserve our trust," Democratic Senator Sherrod Brown, the ranking member of the Senate Banking Committee, said in his opening remarks. "We'd be crazy to give them a chance to let them experiment with people's bank accounts."
Facebook's plan has also stirred concerns in places like Germany. "The issuance of a currency does not belong in the hands of a private company because it is a core feature of a sovereign state," German Finance Minister Olaf Scholz said on Tuesday.
Quoting an internal ministry document, Germany's Bild newspaper had earlier reported that the German government and central bank will look into how to prevent Libra from becoming an alternative to national currencies such as the euro. He also warned it could serve as a "gateway for terror financing and money laundering."
US Federal Reserve chairman Jerome Powell, French Finance Minister Bruno Le Maire and Bank of England governor Mark Carney have also spoken out against Libra.
Bitcoin: Where it came from and where it's headed
The booming cryptocurrency has a cryptic backstory and a perplexing modus operandi. Following a year of particularly tumultuous growth, DW asks where Bitcoin will go next. Can it sustain its incredible ascent?
Image: picture-alliance/dpa/J. Kalaene
Good time to start a currency
Introduced in 2009, Bitcoin was the world's first decentralized digital currency. It quickly gained traction amid lingering uncertainty in the wake of financial crisis. Designed to be as rare as gold, Bitcoin was created to have a maximum of 21 million "coins." Initially worth just a fraction of a cent, by February 2011 the currency had gained parity with the US dollar, then it really took off.
Image: picture-alliance/dpa/J. Kalaene
An anonymous founder
The name Satoshi Nakamoto is synonymous with Bitcoin. It is said to be the alias for an unknown IT whizz who invented the cryptocurrency. But despite claiming to be a 30-something Japanese national, it is generally thought that several computer science experts created the technology behind the digital coin. One rumor even suggested that Tesla chief Elon Musk is the real Satoshi, which he denied.
Image: Reuters/AAP/B. Macmahon
So no coins then?
Instead of being printed like dollars and euros, each Bitcoin is created on a global network of computers and verified by the system rather than a bank. There are no transaction fees. The smallest amount you can buy is a "Satoshi" or one-hundred-millionth of a Bitcoin. Purchases can be made anonymously and even at digital currency ATMs. When you buy Bitcoin, it is often stored in a digital wallet.
Image: DW/M. Sevcenko
Complex puzzles
To ensure that not too much Bitcoin comes into circulation, a process called mining was created where blocks of transactions could only be processed once a difficult math problem was solved by geeks. The puzzles are becoming so complex that bigger and bigger computers are being utilized to decipher them. That's led to concerns about the amount of electricity used to handle Bitcoin transactions.
Image: Getty Images/AFP/M. Zmeyev
Are Bitcoin fortunes legit?
Due to its anonymous nature, Bitcoin's success is likely being fueled by organized crime, including money laundering and the purchase of illegal goods. The currency is also being targeted by cybercriminals. A recent hack blamed on North Korea forced a South Korean digital currency exchange into bankruptcy. Reports suggest the "Islamic State" armed group used Bitcoin to receive funds to buy arms.
Image: picture-alliance/Zuma Press/M. Dairieh
Bitcoin leads, others follow
Bitcoin is the largest of all the cryptocurrencies and its incredible rise has spawned many imitators. Other large digital cash creators include Ethereum, Zcash, Bitcoin Cash, Ripple and Litecoin. As of November 2017, their number had swelled to 1,324. Hundreds of others have attempted and failed to launch their own digital coins. The market is now coming under increasing scrutiny by regulators.
Image: picture-alliance/NurPhoto/J. Arriens
Watch it skyrocket
2017 was a stratospheric year for Bitcoin. Worth close to $1,000 in January, some twelve months later it had scaled to an all-time high of $19,784. Despite much skepticism, the currency started to see serious interest from institutional investors. Two exchanges began Bitcoin futures trading, allowing speculators to punt on the incredible volatility in the value of the cryptocurrency.
Image: Reuters/D. Ruvic
Warnings abound
From central banks to respected investors, almost the entire financial establishment warned of a massive Bitcoin bubble, which they said can only end in disaster for holders of the digital currency. Among them was Nobel prize-winning economist Joseph Stiglitz who said Bitcoin "ought to be outlawed." Jamie Dimon, the CEO of JPMorgan Chase labeled those who buy the currency "stupid."
Image: World Economic Forum/Benedikt von Loebell
The shape of things to come?
Just before Christmas 2017, Bitcoin saw a dramatic rally, topping out at nearly $20,000 before losing a third of its value in just five days. More intense volatility followed early in the New Year, only to be reversed when it plummeted by almost half. Are we in for an even bigger rollercoaster ride if Wall Street adopts Bitcoin?
