MAS studying Facebook’s planned cryptocurrency Libra ‘very carefully’

SINGAPORE — The Monetary Authority of Singapore (MAS) said on Thursday (June 27) that it has held discussions with Facebook on its plans for a new global cryptocurrency and intends to study the proposal “very carefully” — in areas such as regulation, privacy and safety.

On June 18, Facebook unveiled plans to create a new cryptocurrency called Libra, which could be launched as early as next year.

“The key challenge is to figure out the nature of (it),” said MAS managing director Ravi Menon, who was responding to questions about how it would regulate Libra at a media briefing on the central bank’s annual report on Thursday.

“We’ve already been in discussions with Facebook, the Libra Association and Calibra, as well as the partners in Facebook, some of whom have major operations in Singapore,” said Mr Menon. The Libra Association and Calibra are both entities associated with Facebook’s cryptocurrency plan.

He noted that the Payment Services Act, which will be in force by the end of this year, “does make provisions for the regulation of virtual currencies and electronic money in wallets”.

“We need to figure out where Libra fits in within this and that’s why I said we need to understand more about how it works… What is it more like? And where and which box can we put it into? At this point, we are not sure yet, but it’s something which we will seriously study.”

Some policymakers around the world have expressed reservations about Facebook’s plans. French Finance Minister Bruno Le Maire said it was “out of the question” that Libra should compete with sovereign currencies.

On Thursday, Mr Menon noted that it would require regulation and said that while the new cryptocurrency presents “interesting propositions”, MAS will need to understand more about how it works.

“Where I think the payment business needs to focus its energies is on cross-border payments which remain expensive, inefficient, sometimes risky. There are various experiments underway including in Singapore on how we can address the cross-border payment problem,” he said.

“So Libra offers a very interesting proposition that could help to address that problem but we need to understand how exactly it is going to work, what are the economics behind it, what are the safety protections behind it, what are the privacy issues involved and so on,” he added.

WHAT IS FACEBOOK’S LIBRA?

With a proposed 2020 launch, Facebook’s Libra will be a “stable-coin”, a digital currency that is supported by established government-backed currencies and securities.

The currency is also not designed to be a speculative asset, like Bitcoin, but a form of digital money backed by a reserve of assets.

If successful, users would be able to send funds in the Libra currency through Facebook — and its subsidiaries WhatsApp and Messenger. Users could also make online purchases with retail websites with fees being lower than those offered by standard banks and credit card services.

Facebook hopes that Libra will serve the “unbanked” population, offering people free and lower-cost banking services such as money transfers.

The company said that 1.7 billion people, or 31 per cent of the global population, currently have no bank accounts or access to modern financial services.

HOW DOES LIBRA WORK?

Facebook will not fully control Libra. Instead, the company has formed the non-profit Libra Association with 27 other partners to oversee Libra and its development.

The group includes venture capital firms, non-profit organisations, crypto firms, corporate financial firms, telecommunication firms and technology service providers. Some of the big names include credit card companies Mastercard, Visa, online retail giant eBay, payment services platform PayPal, and ride-hailing companies Uber and Lyft.

All of these partners — except non-profit organisations — were required to invest at least US$10 million (S$13.54 million) each into the project’s operations, which will contribute to what is known as the Libra Reserve, the asset pool that will ensure every unit of Libra currency is backed by something of intrinsic value.

Given the huge public backlash over Facebook’s data privacy issues over the past couple of years, the tech giant has also created a subsidiary to separate financial transactions and personal data.

The new subsidiary, Calibra, will build and maintain the company’s digital wallets and work on the Libra cryptocurrency. Facebook said that Calibra will store users’ financial data on separate servers and will not share it with Facebook.

POTENTIAL CHALLENGES

But the venture must first overcome regulatory hurdles.

Libra definitely has “big potential” in Singapore and Asean as it can help to include those without access to financial services, said Mr Anson Zeall, the chairman for Singapore’s Cryptocurrency and Blockchain Industry Association.

However, he felt that the major hurdle was to get regulatory consensus.

“It would not just require MAS’ approval, but in Asean, all the regulators have to come to a consensus to allow it. It could potentially be a security token, meaning that it would have to get approval from many countries for the currency to circulate,” said Mr Zeall.

In a city like Singapore, with its array of digital payment services, the concept might prove to be of little value-add as well.

Said Mr Menon: “(Libra) does offer the prospect of very cheap payments and the allure of bringing into the financial system the unbanked people in many parts of the world, especially in Asia. This is promising.”

“(But) it is not clear if it offers a distinctly superior proposition to existing electronic-payment mechanisms. In Singapore, we have electronic wallets and very good bank applications that allow payments now in three clicks,” he added. ADDITIONAL REPORTING BY KENNETH CHENG