The European Central Bank (ECB) has warned that Facebook’s plans to create a new currency could undermine its powers to set monetary policy.
ECB board member Yves Mersch said this morning that the social media giant’s proposed currency, Libra, could potentially reduce the body’s control over the euro.
He also said the new digital currency could “impair the monetary policy transmission mechanism by affecting the liquidity position of euro area banks and undermine the single currency’s international role, for instance by reducing demand for it”.
Mersch’s comments follow a string of warnings from various central banking figures in recent months surrounding the security and reliability of digital cryptocurrencies.
Bank of England governor Mark Carney has previously said that Threadneedle Street is keeping an “open mind but not an open door” to the company’s stablecoin Libra.
The Financial Conduct Authority (FCA), the City’s watchdog, confirmed in June that it was working alongside the Bank of England to monitor Facebook’s plans.
Libra, which was unveiled earlier this summer by Facebook founder Mark Zuckerberg, is a “global currency and financial infrastructure” powered by the site’s version of blockchain – the technology that underpins bitcoin.
The social media giant describes it as a so-called stablecoin, which means it is tied to a fixed asset in order to reduce the kind of volatility seen with bitcoin’s huge fluctuations in value.
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While some stablecoins are tied to a single currency, Libra is pegged to a group of “low-volatility assets, including bank deposits and government securities” in various currencies.