Libra shows banks can do more, says Singapore's top central banker
Facebook's embattled bid to create its own digital currency has laid bare shortcomings in cross-border payments and financial inclusion that banks and regulators must address, according to Singapore’s top central banker.
Central banks “need to answer” the challenge posed by Facebook’s attempt to create a faster and more affordable payments network with Libra, Ravi Menon, managing director of the Monetary Authority of Singapore, said in an interview this week.
“They are pointing to a correct problem, they are offering a solution,” he said. The challenge is to see if similar results can be achieved “within the existing banking framework — which is tried and tested” — and with the involvement of central banks, he said.
Facebook set off alarm bells among central banks in June when it announced plans to create a digital currency seen by many as a threat to existing monetary regimes. Libra has drawn criticism from the likes of Federal Reserve Chairman Jerome Powell, who has raised concerns about money laundering and consumer protection, and the European Central Bank’s Yves Mersch, who described it as “beguiling but treacherous.”
A critical part of Facebook’s plan was to secure the support of major players in the payments and tech industry to launch its stablecoin, which is likely to be tied to a basket of currencies including the Singapore dollar. The Libra Association, the group that will oversee the digital currency, took a blow this month when several key partners, including Mastercard, Visa and eBay, abandoned the project.
Menon said Facebook’s proposal though has generated a “tremendous amount of new thinking” in certain areas.
He pointed to Singapore’s so-called Project Ubin as an example of efforts to apply technology to improve global payments. The pilot scheme experiments with blockchain-based systems to clear and settle payments and securities transactions.
About 1.7 billion people worldwide, or close to one-third of adults, are "unbanked," or without an account at a financial institution. Meanwhile, a study on worker remittances by the World Bank calculated that the global average cost of sending $200 “remained high” at around 7% in the first quarter of 2019.
Facebook’s Libra shows the banking community hasn’t done “too good a job,” said Menon, though it still needs to provide an answer. “Do we need a Facebook kind of solution outside of the banking system in order to solve this problem? I’m not so sure.”
Here’s an edited version of Menon’s other comments on regulating new players in the financial sector and his concern about technology risks:
Globally, “we have not paid enough attention to technology-related risks. The pervasive use of technology has been hugely beneficial, but I am not sure all the players involved — financial institutions, consumers, central banks, regulators and governments — whether all of us have a really good handle on the various kinds of cyber risks, or more broadly technology-related risks,” that can potentially have systemic consequences.
Regulating new tech players
“We apply a ‘materiality’ threshold, so if you’re operating a small wallet for single-purpose purchases, that’s something we don’t need to regulate. That said, we do want to bring more players into the regulatory ambit who carry out similar activities as regulated entities. The Payment Services Act is a good example. As a result of the act coming into force next year, we’re going to be regulating and licensing many more payments players who are currently unregulated.”