Libra has been examined in some detail already — perhaps the most interesting point to note is that every central banker of consequence has made a statement about Libra. Why? Because it is the first cryptocurrency that has the scale to be competitive (potentially) with central bank-issued currencies.
Central bankers have never had competition before. They’ve never really had to be technological innovators (except to keep ahead of counterfeiting) and they’ve never been truly comfortable with cryptocurrencies like Bitcoin – because of their deflationary design.
Libra is probably the beginning of a process that will see state-backed ‘digital currencies’ enter the market over the next several years.
TWO: The Financial Activities Task Force Guidance on Cryptocurrencies
Almost no one has heard of the FATF. They’re an international body that makes ‘recommendations’ to national governments that inevitably become enshrined in law, because FATF recommendations are aimed at preventing money laundering and the funding of terrorist activities through the formal banking system.
On 21 June, FATF issued new rules for cryptocurrency exchanges – where you convert your Bitcoins into dollars and vice versa – that require them to comply with the ‘travel rule’ – which means the exchanges have to do just what the banks do – make sure you’re not sending funds to a terrorist or terrorist organisation, or a state that’s been sanctioned (Iran, North Korea).
The exchanges have hitherto operated in a largely regulation-free environment. That’s been fun for them, but also made them radioactive to the formal financial system. A bank can’t work with an exchange because it can’t ever know whether it’s facilitating money laundering by doing so. This new FATF recommendation means that exchanges and banks will be able to work together, and banks will be able to offer their customers cryptocurrency services and exchanges.
THREE: The V20 Summit
The V20 summit (disclosure: I served as Summit Chair) was called almost as an ‘emergency’ meeting for the exchanges, so they could work together to map out how they would comply with these new FATF recommendations. It means exchanges (or ‘VASPs’, Virtual Asset Service Providers, in FATF lingo) have a need to work together on common standards on how they can share the data required by the ‘travel rule’ – for example, common formats for sender and beneficiary details, or how you can tell whether another VASP is authentic, etc…
That level of cooperation and compliance has never been needed before, so at V20 the VASPs mapped out their first steps toward a system that looks a bit like SWIFT – which is how banks manage relationships with thousands of other banks internationally – but designed specifically for VASPs and cryptocurrencies.
It’s early days, but if this succeeds (failure means that the exchanges are all driven out of business by the regulators, based on FATF guidance, so that’s not really an option) then we’re seeing the birth of a big and brand-new part of the global financial system.
That’s why V20 was compared to the Bretton Woods summit that created the modern financial system:
In this new system, the leading participant is likely to be Facebook’s Libra. Quickly followed by digital dollars, Yuan, Yen, Euros, and so forth…
A world almost inconceivable just a fortnight ago has become the next stage in our global financial future. Twelve days that truly shook the world.