Author(s): Heike Mai
Date published: Oct 2019
SUERF Policy Note, Issue No 108
by Heike Mai, Deutsche Bank Research
JEL-codes: F3, G23, E5.
Keywords: Digital currencies, cryptocurrencies, private money, payments, financial infrastructure, BigTech, financial globalisation, financial hegemony.
Facebook’s Libra project aims to establish both a private digital currency backed by a basket of hard currencies and a global payment network. Facebook can integrate Libra services into its digital platforms and benefit from strong network effects. It is thus challenging many established players in the financial system.
So far, though, “global” means “US led” and does not include China, which has shut Facebook out of its market anyway. In response to Libra, China is pushing the development of a digital yuan.
In Europe, Libra would enter an open and competitive but fragmented digital payments market. As a currency, Libra will carry a foreign exchange risk for Europeans. But if the ECB were to drive interest rates deeply below zero, Libra could offer an easy digital way out. The flipside, though, could be a loss of sovereignty for Europe.
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