ECB’s Coeure Warns Stablecoins Could Affect Monetary Policy

(Bloomberg) -- Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here. 

Private stablecoins such as Libra could affect the transmission of monetary policy through the economy, European Central Bank policy maker Benoit Coeure warned as he stepped up his call for rules to govern digital currencies.

Facebook Inc.’s Libra plans have sparked criticism on both sides of the Atlantic, facing bipartisan scorn during congressional hearings in July and U.S. legislative proposals that would kill it. French Finance Minister Bruno Le Maire called for Libra to be blocked in Europe, declaring it too risky and a threat to sovereignty.

Coeure, who chairs a Group of Seven working group on stablecoins, told German lawmakers in Berlin that credit or overdraft extensions in such digital denominations could pose a challenge for central banks if they start to substitute domestic currencies.

“There may be the risk of the monetary sovereignty of countries being infringed,” he said on Wednesday, adding that demand for such services is bound to grow. “Policy makers and central banks should respond to these challenges.”

His working group is likely to provide policy recommendations on stablecoins by the time of the next International Monetary Fund-World Bank annual meetings in mid-October.

In his second speech on stablecoins in a week, Coeure said the Libra-like currencies raise a number of red flags from risks related to money-laundering to financing of terrorism and data protection.

They “need to demonstrate a sound legal basis,” he said. “The global nature of these initiatives means that potential conflicts of laws across jurisdictions need to be addressed.”

Both Coeure and Bank of England Governor Mark Carney have noted that stablecoins could ultimately challenge the dollar’s dominance in global trade and status as the world’s reserve currency. Carney used a U.S. Federal Reserve symposium last month in Jackson Hole, Wyoming, to say that a Libra-like global digital currency -- issued by central banks -- would be preferable to allowing another national currency such as China’s renminbi to take the dollar’s place.

To contact the reporters on this story: Piotr Skolimowski in Frankfurt at pskolimowski@bloomberg.net;Birgit Jennen in Berlin at bjennen1@bloomberg.net

To contact the editors responsible for this story: Paul Gordon at pgordon6@bloomberg.net, Zoe Schneeweiss

©2019 Bloomberg L.P.