Instead of a digital currency that is made up of a basket of fiat currencies, they are now looking at issuing a series of digital currencies pegged to individual fiat currencies, and similar to some of the existing stable coins which currently exist e.g. Tether, US$, Circle etc. Interest in some stablecoins (such as Tether) have seen a substantial increase in their assets recently, as Tether is now worth over $6.35 billion, a rise of $2 billion in just March. It would appear that those at Libra wish to help central banks create their own individual fiat-linked stablecoin and, to start the process, Libra has applied to the Swiss Financial Markets Supervisory Authority (FINMA)s for a payments services license. Facebook’s David Marcus said, “Libra will sport a comprehensive network-level system around anti-money laundering (AML), Combatting the Financing of Terrorism (CFT), and sanctions enforcement" and "building stronger protections into the design of the Libra Reserve to protect consumers, even in the most adverse situations”.
However, the Financial Stability Board (FSB) has announced 10 proposals to central banks, and one of the them is to ban decentralised stablecoins if it is felt they cannot be controlled or regulated. Potentially, if the recommendations proposed by the FSB are enacted then Tether, for example, may need to become authorised in every country in which it wishes to issue its token. As a result, this would substantially increase its compliance infrastructure and costs. Could it be that the FSB proposals a method of simply ‘clearing the way’ so that, in effect, it will only be central bankers who are able to create digital currencies?
Meanwhile, in China, the government is still progressing its plans to launch a national digital currency (DCEP) as local government employees in the city of Suzhou will receive 50% of their May 2020 transportation subsidies in DCEP. The DCEP payments will be made by four state-owned banks - the Agricultural Bank of China, the Industrial and Commercial Bank of China, the Bank of China and the China Construction Bank. It is not just in China we are seeing increasing adoption, as in Malaysia a payments platform (MoneyMatch) has announced it will soon be using Ripple. CEO of MoneyMatch, Adrian Yap, believes that banks make huge profits from FX-operations which are really expensive for the users. He recently stated, “After joining RippleNet, we were suddenly a credible partner for all these financial institutions and payment providers around the world. Working with RippleNet partners allowed us to cut our costs by as much as 40% and instead of transactions taking at least two days, we were completing payments in just a few hours.”
Now, what could be a significant change in the financial services sector regulations is, were Libra to indeed manage to build in a set of strong AML controls, would the use of its version of a digital currency mean that there would be less need for compliance checks by other institutions? In effect, would financial institutions be able to delegate their AML thus potentially making the flow of capital much faster and more efficient. After all, had holders of a digital currency been checked and, in effect, accredited once, why would they then need to be rechecked each time their money passed from one institution to another? Currently in the UK the responsibility for AML checks cannot be delegated (according to the FCA) but using Blockchain technology and having the transaction on a verifiable immutable data base could and, indeed, will we see pressure to change?