Skip to main content

ECB's Mersch Takes A Jab At Facebook's Libra

Yves Mersch, Member of the Executive Board of the European Central Bank

image: Latvijas Banka on Flickr

In a recent speech at the ESCB Legal Conference, Yves Mersch, who serves as a member of the Executive Board of the European Central Bank, took quite a jab at Libra, Facebook's recently unveiled digital currency. During his speech, Mersch outlines concerns on the adoption of Facebook's digital currency, which is scheduled to launch in the first half of next year. Mersch's speech focused on three core questions: "First, how does Libra differ from other private currencies and from public money? Second, what legal and regulatory challenges does it pose? And third, in the light of its mandate, what position should a central bank like the ECB [European Central Bank] take towards Libra?".

Before moving on to touch on the questions, Mersch earlier reminisced of previous controversies Facebook has faced. "...I will today talk about Libra, Facebook’s newly announced private currency. It is scheduled for release in the first half of 2020 by the very same people who had to explain themselves in front of legislators in the United States and the European Union on the threats to our democracies resulting from their handling of personal data on their social media platform." He said. Mersch's stand isn't really startling, for someone known as a critic of the adoption of current digital currencies.

To get fully detailed answers given by Mersch in response to his three aforementioned questions, we suggest you take a look at the full speech. However, we've provided a summary of his response, outlined below:
  •  "First, how does Libra differ from other private currencies and from public money?"
Mersch's take is that despite the "hype" surrounding Libra, it isn't really different from other private digital currencies that are already in circulation. Mersch's may be just right, as the Libra will be issued through a public ledger running on a form of blockchain technology as the case has been with other currencies. Where he sees a potential problem is in its control, terming Libra's handling method as "cartel-like".

Mersch is referring to the way Libra will be controlled: by a team of founding members who have put up at least $10 million each into its operations. The members, including Facebook itself, will each get a single vote when decisions are to be made concerning the digital currency, similar to the way it's done in traditional board settings. The members, which include top tech companies, VC firms and some non-profits, will earn interest on the money put in by Libra users, which will be held in reserve to stabilize the value of the currency.

"When it comes to money, centralisation is only a virtue in the right institutional environment, which is that of a sovereign entity and a central issuance authority. Conglomerates of corporate entities, on the other hand, are only accountable to their shareholders and members. They have privileged access to private data that they can abusively monetise. And they have complete control over the currency distribution network. They can hardly be seen as repositories of public trust or legitimate issuers of instruments with the attributes of “money”." Mersch said.

Facebook's Libra head, David Marcus. Marcus previously served on the board of Coinbase, and as President at PayPal.

Photo by Steve Jennings/Getty Images for TechCrunch

  • "Second, what legal and regulatory challenges does it pose?"
Mersch outlined three regulatory challenges [in respect to the EU] concerning Facebook's Libra: The first being its fundamental legal nature, the second: how the EU and supervisory authorities can be sure of a jurisdiction over the digital currency, and the third: cross-border cooperation and co-ordination, as the Libra is aimed for use across borders. Concerning the first, Mersch weighs if Libra will be treated as e-money, a financial instrument or as a virtual currency, none of which Libra has been formally classified under. He called for regulatory intervention to confirm Libra’s classification under an existing legal and regulatory framework, or create another one for it.

Concerning the second, Mersch is worried that the EU wouldn't have regulatory control over Libra, given the location of its controlling entities outside the EU. He proposes one way to do that: requiring local custody of a share of Libra's reserve funds that's equal to the amount of Libra in circulation in any given EU Member State.

On the third, Mersch says Libra's cross-border and global nature should attract global regulatory and supervisory response. Some global countries have already begun that, he noted.

Facebook CEO Mark Zuckerberg

image: Anthony Quintano on Flickr

  • "And third, in the light of its mandate, what position should a central bank like the ECB take towards Libra?" 
On this matter, Mersch says the European Central Bank takes a close interest in market innovations that could affect its control over the Euro or shift some of its monetary policy to third parties. Depending on the level of adoption, Mersch says Facebook's Libra could reduce the ECB's control over the Euro, affect monetary policies by taking an effect on the liquidity position of eurozone (countries that adopt the euro as their official currency) banks, and "undermine the single currency’s international role", for instance by reducing its demand.

"In the field of money, history bears testament to two basic truths. The first is that, because money is a public good, money and state sovereignty are inexorably linked. So the notion of stateless money is an aberration with no solid foundation in human experience. The second truth is that money can only inspire trust and fulfill its key socioeconomic functions if it is backed by an independent but accountable public institution which itself enjoys public trust and is not faced with the inevitable conflicts of interest of private institutions." Mersch said.

"The stance of central banks towards modern forms of money is bound to evolve with time, and central bankers have embraced technological developments in the field of money and will continue to explore helpful new innovations. But the rise of cryptocurrencies and other forms of privately issued instruments that can only fulfil some, but not all, of the functions of money is unlikely to fundamentally upset the two truths I just described." He said.

In a concluding statement, Mersch took quite a poke, saying "I sincerely hope that the people of Europe will not be tempted to leave behind the safety and soundness of established payment solutions and channels in favour of the beguiling but treacherous promises of Facebook’s siren call." Mersch's sentiments echo that of EU Competition Commissioner Margrethe Vestager, who has said that Facebook's digital currency stimulates antitrust concerns.


Most Read Posts

Tesla Seals New Lithium Supply Deal

Electric carmaker Tesla has announced that it's entered into a binding agreement to purchase lithium ore mineral from Piedmont Lithium Limited, a publicly-traded lithium company that's based out of Australia. The agreement between both companies is initially for a five-year period, in which Tesla has committed to purchasing roughly one-third of Piedmont's annual output 160,000 tonnes of lithium ore mineral for each year as well as additional amounts that the electric carmaker has the option to request. The agreement is conditional on deliveries of the lithium ore beginning sometime between July 2022 and July 2023.Piedmont says it expects the Tesla deal to generate between 10-20% of total revenues from its proposed lithium project for the initial five-year period. That project, in particular, is the 'Piedmont Lithium Project', a lithium ore mining project being spearheaded by the company in the US state of North Carolina. A deal between Piedmont and Tesla represents…

Northvolt Lands $600 Million Round

Northvolt, a Swedish battery developer and manufacturer, has announced that it's landed $600 million in fresh private funding from a group of investors that include automakers Volkswagen and Scania, investment bank Goldman Sachs, asset management firms Baillie Gifford and Baron Capital Group, and Swedish entrepreneurs Cristina Stenbeck (AB Kinnevik) and Daniel Ek (Spotify). Northvolt will use the new capital to make further investments in expanding its battery production and recycling capacity, as it aims to establish 150 GWh of annual battery manufacturing capacity in Europe by the year 2030. Northvolt is currently building a battery 'gigafactory' in the Swedish city of SkellefteĆ„ that it says will have a potential annual production output of 40 GWh. In the same time frame, the company also plans to build a large-scale battery recycling factory beside the production facility that'll have an initial annual capacity of 4 GWh. Also, Northvolt plans to set up yet another …

Hims On Cusp Of Reverse Listing

Hims, a telemedicine upstart, is on the cusp of a deal to go public by merging with blank-check firm Oaktree Acquisition Corp, according to a report [paywall] from Bloomberg, which states that a deal could be announced as early as next week. According to Bloomberg, Oaktree Capital Group, the asset management firm which controls the blank-check firm, is in discussions with investors to raise about $75 million in new funds to fund a merger with Hims, which could be valued at up to $1.6 billion from the deal.Hims is a telemedicine upstart that's best known for offering online prescriptions to treat conditions that are usually stigmatized, such as sexual dysfunction. The company facilitates online consultations with doctors and deliveries of prescription drugs to patients. Also, Hims sells its own line-up of skincare products and vitamins. As a private company, Hims, which was founded in 2017, has raised nearly $200 million in funding and was valued at $1.1 billion from its most recen…

Peeking Into Postmates' Finances

Food delivery service Postmates in on the cusp of a deal to merge with counterpart Uber, which is coughing up $2.65 billion in stock to take over the company. As the merger nears, appropriate filings have been made with the U.S. Securities and Exchanges Commission (SEC), giving a peek into Postmates' finances, information not publicly revealed up until now. Filings with the SEC show that Postmates recorded roughly $321 million in revenue in 2019, but with a net loss of $420 million in the same year. In 2018, the San Francisco-based company reported roughly $156 million in revenue and a net loss of $129 million in that same year. As at the end of 2019, Postmates had $186 million in cash on its balance sheet, after having raised about $900 million in funding up until that point as a private company. In 2019, a year that Postmates sought to go public, the company burned through $335 million in sales and marketing expenses, its highest ever, and compared to $85 million for the same ac…

Brief: Apple Buys Scout FM

Technology giant Apple has bought Scout FM, a popular app that creates radio stations for podcast listeners. The acquisition was first reported [paywall] by Bloomberg, which notes that Apple acquired the company earlier this year. The financial terms of the acquisition aren't disclosed. As a private company, Scout FM had raised $1.4 million in known funding from investors including Bloomberg Beta, Betaworks, Precursor Ventures, and Advancit Capital. Apple's acquisition of Scout FM is one of several known purchases the company has made this year. The Cupertino, California-based tech giant has acquired more than half-a-dozen companies in 2020, including Fleetsmith, a mobile device management startup; Mobeewave, a payments company; virtual reality company NextVR; weather app Dark Sky; and artificial intelligence company Apple usually keeps its purchases tight-lipped, with most of them revealed by external media.

Tim Cook Lands Fresh Pay Package

Tim Cook, the Chief Executive of technology giant Apple, has been granted a new pay package that'll run from this year through 2025, as indicated by a filing submitted to the U.S. Securities and Exchanges Commission (SEC) by Apple. According to the filing, Tim Cook will receive 333,987 units of restricted stock that'll vest in thirds on an annual basis beginning 2023. The Apple CEO has also clinched a separate pay package of 333,987 units of stock that'll vest in 2023 and with an option to double if Apple meets certain performance targets. Under the compensation plan, Cook could pocket as much as 1 million shares over the next five years, shares worth $114 million going by Apple's current (as of writing) trading price of $114, and with even more potential to grow if Apple's share price climbs over the next five years.Cook, who took up the CEO position at Apple in 2011, has been handsomely paid over his career and just recently bagged a $280 million stock bonus as p…

Gemini Expands Into UK

Gemini, the popular US-based cryptocurrency exchange founded by the Winklevoss brothers, has officially fully expanded into the UK, now supporting cryptocurrency trading and custody transactions in pounds sterling (GBP), the UK's official currency. Gemini's launch, as expected, comes on the heels of the UK's Financial Conduct Authority (FCA) granting the company an Electronic Money Institution (EMI) license, a license that normally grants a firm the permission to store clients' money for longer periods and to also issue cards, e-wallets and other instruments that facilitate the usage of their clients' money. Gemini overall is one of the first crypto businesses to be given such a license in the UK.With Gemini's launch, users can now make crypto purchases with British pounds and also make pound deposits to fund their accounts on the go without any major need to transact in foreign currencies or incur exchange rate fees. Institutional investors in the UK are not s…

EU Fights Apple Tax Fine Reversal

The European Commission has said that it'll appeal an Irish tax penalty reversal that was recently granted to Apple after the technology giant won an appeal to a $15 billion tax penalty that was levied against it by the European Union's second-highest court. The tax penalty in concern was levied against Apple in 2016 over allegations that the European nation of Ireland granted selective tax breaks to the company, which maintains its European headquarters in Ireland. That penalty was later appealed by Apple as well as the Irish government, which both came out victorious in July of this year. Now, the European Commission's Executive Vice President, Margrethe Vestager, has said that it'll appeal the penalty reversal in the EU's highest court. Vestager is taking forward the matter to the European Court of Justice, officially the supreme court of the European Union. "If Member States give certain multinational companies tax advantages not available to their rivals,…

Exotec Bags $90 Million Round

Exotec, a French warehouse robotics startup, has announced that it's raised $90 million in a funding round led by venture capital firm 83North, with participation from Dell Technologies Capital, Iris Capital, and Breega. Exotec says it'll use the new funding to fuel its international development, particularly in the US state of Atlanta and the Japanese capital of Tokyo, and with an ultimate ambition to begin churning out as much as 4,000 robots each year by 2021.Exotec makes warehouse robots used by retailers and e-commerce companies to organize their warehouse fulfillment operations. The company's flagship product is the Skypod warehouse robot that's currently adopted by customers including French retail giant Carrefour and Japan's Fast Retailing, which is one of the biggest retailers in the country. Exotec, which is based out of France, has sought new international clients to boost business and has seemingly succeeded in doing so, with the company stating that it…

Cisco Snaps Up Portshift

Networking giant Cisco has announced that it's reached a deal to acquire Portshift, a cybersecurity startup based in Israel that was founded only two years ago. Financial terms of the deal weren't formally disclosed, but a report from Israeli newspaper Globes pegs the acquisition price at around $100 million. As a privately-held startup, Portshift has raised $5.3 million in known funding (Crunchbase data). The cybersecurity startup was founded out of Team8, an Israeli startup accelerator that may be best known for scoring a win when one of its incumbents, cybersecurity company Sygnia, sold to Singapore's Temasek for $250 million in 2018.  Portshift currently has just about 15 employees, who will all become housed under Cisco's Emerging Technologies and Incubation division following the completion of the acquisition. Among the employees that Cisco will be getting include Portshift's founders by the names of Ran Ilany (CEO), himself a cybersecurity veteran who before…