Stablecoins like Facebook’s Libra are ‘vulnerable to runs’, ECB says


Financial stability and data privacy could be under threat from digital currencies issued by big technology firms such as Facebook’s Libra, the European Central Bank has warned.

Private firms issuing stablecoins — a form of digital cash tied to fiat currencies such as the dollar — are not protected by bank safeguards and are vulnerable to runs if users, “who bear all the risks”, expect prices to fall, ECB board member Fabio Panetta said in a speech on 4 November.

This means new currencies such as Libra “can pose serious risks” to the EU’s market structure and financial stability as well as its technological independence from big firms, he added.

Big tech companies are large enough that they could encourage lots of people around the world to use their stablecoin for daily transactions, Panetta said. That could amplify existing concerns that the tech giants have made it too hard for smaller players to compete with them.

If tech firms were able to control whether smaller third-party firms can gain access to a major currency, Panetta warned consumers would have less choice, while companies such as Facebook would only tighten their grip on personal data.

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“Ultimately, entrusting foreign providers with the control of large pools of personal data could entail significant costs for both EU citizens and firms,” he said. “The issues at stake range from data security and compliance with EU data-protection law to cutting off the lifeblood of European financial innovation.

“This would not be acceptable,” said Panetta. “Citizens should not have to choose between the convenience of their favourite apps and devices and safety, of which central bank money remains the highest expression.”

The European Central Bank is currently working on the possible introduction of a digital euro, intended to be a central bank-controlled competitor to private stablecoins such as Libra. It started a public consultation on the project in October.

To contact the author of this story with feedback or news, email Emily Nicolle



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