It isn’t a secret that when Facebook unveiled its crypto project, Libra in June, a proverbial fire was lit under the rear ends of the world’s central banks, financial institutions, and governments.
While expected to be backed 1:1 by the world’s leading fiat currencies, this blockchain network will be an entirely alternative financial framework that will have implications for the entire world. No wonder those in power have been caught aback.
At first, it seemed that governments were going to tackle Libra by stemming its development, with U.S. politician Maxine Waters calling for an immediate moratorium on the project’s development by Facebook. Such proposals are still on the table, but there seems to be another solution being floated: central bank digital currencies.
The crazy thing is, the creation of government-backed crypto assets is gaining traction from people in high places. Most recently, one of the most important people in Germany gave his thumbs up to the idea that the European Union should have its own digital currency.
Prominent German Politician Backs Crypto Euro
Speaking to WirtschaftsWoche, a German business newspaper, Olaf Scholz threw his weight behind a digital Euro. The German Finance Minister, who is also the vice-chancellor under Angela Merkel, said in reference to a centralized cryptocurrency for the Eurozone:
“Such a payment system would be good for the financial center Europe and its integration into the world financial system. We should not leave the field to China, Russia, the US or any private providers.”
Scholz isn’t the only prominent European politician to have seriously considered a digital Euro. France’s equivalent of Scholz, Bruno Le Maire, was reported in September that the European Union should throw its hat into the cryptocurrency ring with a “public digital currency”.
Two to Three Years Away
While discussion regarding central bank digital currencies is still very preliminary, it may not be that long — at least on a macro scale — before such projects begin to roll out to consumers.
Per previous reports from Blockonomi, Dutch financial institution ING’s chief economist, Mark Cliffe, has argued that the launch of Libra will push a “G20 central bank” to launch a “fully-fledged digital currency” in the near future.
He added that since Libra was unveiled, there has been a “sense of urgency” within the monetary policy community that central banks need to react. This urgency, he claims, will result in large central banks making moves to establish their own digital assets within the “next two to three years”.
The benefits that would come with these assets, he claimed, would aid the economy. One benefit he discussed, albeit briefly, was negative interest rates. With a fully-fledged digital currency system, central banks could impose negative interest rates on all consumer accounts, giving these authorities much power in dictating the direction in which an economy should take.
The idea with an E-euro, a digital dollar, or what have you is that it would decrease the value proposition of Libra or privately-issued currencies, thus stemming the creation of a financial system that does not abide by the status quo. Thus, Schloz’s decision to back a central bank cryptocurrency could be deemed a blow to the Silicon Valley project.
Though, a crypto asset for the Eurozone isn’t the only headwind that Libra has been subject to. On Friday, a spokesperson for the fintech giant, PayPal, said that the company has decided to “forgo further participation” in the project. Mastercard, Visa, and Stripe are also hesitant about the project, sources have told outlets.
Anyhow, it remains to be seen how the loss of a key partner in PayPal and competition in the form of a government-backed cryptocurrency will affect Libra.