The Group of 20 major economies agreed Friday that global digital currencies should not be rolled out unless “serious” risks of money laundering and illicit finance are addressed, casting a shadow on Facebook Inc.’s plan to launch its Libra currency next year.
Wrapping up their two-day meeting in Washington, G-20 finance chiefs also showed support for ongoing efforts to create international taxation rules to plug the loopholes used by IT giants, such as Google LLC, to reduce their corporate taxes.
With countries seeking to tackle challenges arising from the digitalization of the economy, it was the first time the G-20 engaged in full-fledged talks over Libra, which Facebook wants to launch in the first half of next year to create a global payment system.
“While acknowledging the potential benefits of financial innovation, we agree that global stablecoins and other similar arrangements…give rise to a set of serious public policy and regulatory risks,” the G-20 said in a press release, referring to cryptocurrencies that seek to stabilize the price of the “coin” by pegging them to real currencies.
“Such risks, including in particular those related to money laundering, illicit finance, and consumer and investor protection, need to be evaluated and appropriately addressed before these projects can commence operation,” it said.
Facebook, a social media giant with 2.7 billion users, believes that the Libra system will help people, especially those in developing countries who have mobile phones but no access to traditional banks, to send money overseas at low cost. Around a billion people have no bank account but have a mobile phone, it says.
Cryptoassets, the best-known of which is Bitcoin, have yet to be seen as a reliable or attractive means of payment due to their highly volatile prices, among other issues. Suspected money laundering cases linked to cryptocurrency have also been reported.
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Facebook has said Libra’s value would be stable because it would be pegged to a basket of major currencies such as the U.S. dollar, euro and yen.
But fears remain that such digital currencies could be used for unlawful activities and even threaten the existing financial system. Since the widespread use of Libra would reduce cash settlements, it could also influence a central bank’s control over money supply and undermine the effectiveness of monetary policy, pundits say.
In July, the Group of Seven industrialized nations called for ensuring “the highest standards of financial regulation” over the project.
Given the stance taken by the G-20 finance chiefs and central bank governors, the planned launch of cryptocurrency Libra, announced by Facebook in June, faces a tough road ahead.
“No countries were in favor of” allowing the commencement of the Libra project before the concerns are addressed, Finance Minister Taro Aso said at a joint press conference with Bank of Japan Governor Haruhiko Kuroda after the meeting. The two chaired the talks.
Kuroda said, “I don’t think stablecoins should be allowed to be issued while countries are considering how to regulate it.”
With concerns lingering over the nascent technology, Facebook is also losing the support it initially had from companies and organizations. Major credit card companies such as Visa Inc. and Mastercard Inc. have decided to withdraw from becoming the founding members of a governing entity to run the currency.
On global taxation rules, the G-20 said in a separate press release that it “welcomed” a proposal published by the Organization for Economic Cooperation and Development earlier in the month.
The proposal is intended to advance international negotiations to ensure multinational enterprises pay taxes based on their sales even in countries where they are not physically present.
Large U.S. IT companies have faced criticism that they are not paying their fair share of taxes as they can book profits in low-tax countries.
At the June G-20 summit in Osaka, western Japan, the leaders endorsed a schedule under which a broad agreement on the taxation scheme could be reached in January 2020, with the final report compiled by the end of that year.
“We reaffirm our full support for a consensus-based solution with a final report to be delivered by the end of 2020,” the G-20 finance chiefs said in the press release.
The G-20 groups Argentina, Australia, Brazil, Britain, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the European Union.
The G-20 finance ministers and central bankers spent the first day of their meeting assessing the downside risks facing the world economy amid recent positive developments seen in the U.S.-China trade row and the United Kingdom’s planned exit from the European Union.
