PARIS: France's finance minister said yesterday that strong guarantees were needed over the use of cryptocurrencies after Facebook announced it was leaping into the market with its own digital money. Finance Minister Bruno Le Maire, whose government has also initiated a new tax on digital giants like Facebook that has angered the United States, said such digital money could never replace sovereign currencies. "If Facebook wants to create an instrument for transactions, why not? But there is no question that this can become a sovereign currency," he told Europe 1 radio, saying a "limit" had to be set.
"It cannot and must not become a sovereign currency, with all of attributes of a currency" such as the capacity to issue sovereign debt and serve as a reserve currency. "The aspect of sovereignty must stay in the hands of states and not private companies which respond to private interests," Le Maire added.
There need to be "guarantees" so that "this transaction instrument is not misused, for example, for the financing of terrorism or illicit activities," he said.
Le Maire, whose country currently holds the G7 presidency, said he had asked the group's central bank governors to prepare a report by mid-July. This would lay out the guarantees required from cryptocurrencies, he added, saying it was necessary to "protect consumers".
Facebook and some two dozen partners yesterday released a prototype of a cryptocurrency called Libra, whose rollout as a global digital money is expected next year. French lawmakers this year approved legislation-dubbed "Gafa" after Google, Amazon, Facebook and Apple-for a new tax on digital giants, and a joint commission of the upper and lower houses is now discussing the final details.
The plan was developed amid rising public outrage at the minimal tax paid by some of the world's richest firms. President Emmanuel Macron has presented himself as a supporter of new technologies but has also made clear that digital giants need to do much more to improve regulation.
He has been hugely critical of the failure of social media companies to crack down on extremism, and in May hosted Facebook founder Mark Zuckerberg for talks in Paris.
"This transaction instrument will allow Facebook to again accumulate millions of millions of items of data," Le Maire said. "This reinforces my conviction on the need to regulate digital giants and ensure they are not in a monopolistic situation," he said.
Roller-coaster world
Cryptocurrencies live in a volatile, roller-coaster world, which Facebook is seeking to change with its new Libra digital money. The new digital currency will be overseen by a nonprofit association and backed with real assets to serve as a reliable, stable form of globally accepted money that lives essentially on smartphones.
How do cryptocurrencies work? To use currencies like Libra, people will need to install software referred to as a digital wallet. Several digital wallets are available, but one called Calibra is being built by a Facebook subsidiary for Apple- and Android-powered smartphones and integrated with the social network's Messenger and WhatsApp mobile services.
This system "lets everyone store their money securely in their phone," Calibra vice president of product Kevin Weil said. A digital wallet chosen by the user is linked to bank accounts or credit cards for transfers or online transactions. "The same way you can pick any browser to go on the internet, you can pick any digital wallet," Weil said.
What are the advantages?
Libra was released as an open ecosystem, so any business or service may accept it for payments. Financial institutions could also offer credit or loans in Libra. "Imagine storing your life savings in your house; it is safer to take it with you on the go on your phone," Weil said.
Calibra, for example, could be used to send money to friends or family members in another country, or shop at stores online or in the real world the same way they might use Apple Pay or Google Pay.
More than a billion people already use WhatsApp and Messenger to communicate, so providing a way to send money makes sense. "Over time, as the Libra ecosystem grows and Libra is built into products and services, there will be more things you can just do with Libra," Weil said.
How is cash converted to crypto?
People without access to banks could go to a currency exchange or merchant to convert cash into Libra. Once on a smartphone, Libra could be sent text-message style, with recipients having the option to save it in their own wallets for future use or convert it to their local currency.
"We make it easy to go back and forth to local currency," Weil said. "If you are unbanked, you will have locations like money exchanges that operate with Libra." Currency exchange fees would be market-driven, but likely less than remittance fees charged by businesses that wire funds.
Calibra has built-in fraud and password recovery protections, and there is a "know-your-customer" process that requires people to initially provide some form of government identification. "This is people's money; we feel a huge responsibility to keep it safe," Weil said. - AFP