Facebook has forced the world’s banks to innovate

an article written by Chris Skinner, the author of the bestselling book Digital Bank and one of the most influential people in financial technology. Chris will give a keynote speech at Banking 4.0, in the second day of the event.

It’s been interesting to watch the development of Facebook’s Libra project. As I expected, regulators hate it and are asking lots of questions about it. Most seem to want to ban it. And now PayPal has dropped out of the original founding team, with Visa and MasterCard rumoured to follow.

What’s also been interesting is the attitude of central banks and regulators, with Libra spurring most into action from inaction. Central banks have long rumoured issuing digital currency versions of their fiat currencies, but have hesitated to do so. If anything, Libra has spurred them into action with China being one of the major economies trying to get there first https://www.coindesk.com/new-head-of-chinas-digital-currency-says-it-beats-facebook-libra-on-tech-features. More than this, however, is the fact that Facebook’s move had the regulators frightened.

The Financial Times covered this fear well in a recent article (one that I liked this time):

When Facebook announced its plans for a private digital payment token called Libra in June, its intention was hardly to goad governments into creating a public electronic currency instead. But that may turn out to be just what it has achieved, by injecting political urgency into a technical debate previously confined to the research papers of central banks.

So true. In fact, truth be told, it has even made the US government change its view of the world, so much so that a digital dollar is now being discussed.

Reuters report that “it is ‘inevitable’ that central banks including the U.S. Federal Reserve will start issuing digital currency, Philadelphia Federal Reserve bank president Patrick Harker said on Wednesday, while cautioning that the United States should not be the nation to lead such a move:

‘Frankly I don’t think we should be the first mover as a nation to do this,’ Harker said at a community banking conference here, given the dollar’s role as the world’s reserve currency and the need to test out new technology. But he added: ‘It is inevitable … I think it is better for us to start getting our hands around it.’”

Interesting, and I guess China has rattled America in saying they’re going to move to a government issued digital currency first. In a letter sent by Congressmen Bill Foster and French Hill to Federal Reserve Board Chairman Jerome Powell, they state that “the nature of money is changing,” with more than 40 countries developing or working on their own national digital currencies, and ask the Federal Reserve to explain their “views regarding this issue at this critical juncture.”

Interestingly Brian Armstrong, CEO and co-founder of Coinbase, called the US response ridiculous …

And others suspect that PayPal were strong-armed to leave Libra by the regulatory overseers, as will be the case with Visa and MasterCard too. It may or may not be the case that Jerome Powell, or one of his floozies, has had a quiet word in PayPal CEO Daniel Schulman’s ear but, either way, the regulators are on the run to innovate thanks to Libra’s announcement. Thank goodness for that, I guess.

About the author

Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club.

He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News.

To learn more click here…