On CNBC’s Squawk Box, Philip Hammond, the Chancellor of the Exchequer and a senior official within the government of the U.K., said that Libra, a crypto asset developed by a consortium of companies including Facebook, poses a risk to the global financial system.
Hammond’s caution towards Libra comes after U.S. President Donald Trump and France’s Minister of the Economy and Finance Bruno Le Maire said that Libra could threaten the authority of central banks and reserve currencies.
Since the release of the Libra whitepaper last month, government officials and ministers in the U.S., the U.K., Russia, and France have all expressed concerns towards its development.
When Facebook first hinted at the release of Libra and the consortium, an organization based in Switzerland with large-scale conglomerates as founding members in the likes of Visa and Mastercard, analysts within the crypto sector anticipated it to be a private blockchain like that of JP Morgan.
However, the official whitepaper of Libra explicitly states that the consortium will initially develop the asset as a permissioned or a private blockchain but intends to evolve into a permissionless or a decentralized blockchain network in the long term.
“To ensure that Libra is truly open and always operates in the best interest of its users, our ambition is for the Libra network to become permissionless. The challenge is that as of today we do not believe that there is a proven solution that can deliver the scale, stability, and security needed to support billions of people and transactions across the globe through a permissionless network,” the whitepaper read.
The ambition of the Libra Association to turn Libra into a decentralized blockchain protocol and a peer-to-peer (P2P) cryptocurrency could be a concern for governments that consider it to be an existential threat towards central banks.
The global monetary system operates under strict guidelines and oversight of central banks with carefully planned monetary and fiscal policies. Some officials have said that although Libra could produce various benefits for the global financial system, it may also hinder its balance.
“It’s potentially positive and transformative step but it also has the potential to deliver a great risk into the system. Because if it is not properly regulated, it could become another channel for money launderers, terrorist financers, and organized criminals,” Hammond said.
Similarly, President Trump cited the potential of facilitating unlawful behavior as a downside of crypto assets.
I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.
In June, almost immediately after Libra launched, Le Maire said that Libra “can’t and it must not happen.”
As said by Ripple CEO Brad Garlinghouse, the release of the Libra whitepaper with support from some of the largest conglomerates internationally garnered significant mainstream attention into the market.
Cryptocurrency companies like Ripple saw record days for contracts, indicating a spike in interest towards the sector.
Some analysts fear that as the development of Libra runs into regulatory roadblocks and faces opposition from several governments, it may have a negative effect on the near term trend of the cryptocurrency market.