Why G7 ban Libra and stablecoins until proper regulations

The tightening regulations came over Libra and stablecoins.

According to Reuter, G7 Financial leaders will oppose the launch of Facebook’s Libra until it is properly regulated. The Draft G7 statement says,

The G7 continues to maintain that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory, and oversight requirements through appropriate design and by adhering to applicable standards.

Facebook's Libra is virtually a stablecoin project which facilities the payments with blockchain technologies. Libra's project has been criticized internally or internationally, like Federal Reserve and European Central Bank. Why G7 is sensitive to Libra?

Is Libra the new Federal reserve globally and Mark Zuckerberg the Fed. chairman?

According to our monetary theory, money has three internal factors: money form, money issuance (standard) and money flow.

Federal Reserve has the absolute power of money issuance. The roles of the Federal Reserve are adjusting money supply and money pricing in relation to purchasing power by monetary policies, reaching goals like stable pricing power, stimulating the economy and increasing jobs.

Libra's stablecoin is based on a basket of currencies, primarily the US dollar. So Libra, unlike bitcoin and Ethereum, has no its own money issuance and doesn't challenge the Fed. power. And the US dollar is full reserved and is expected to be under third-party regulatory account, so it won't provide additional credit "money" to the market like banks had done. So we can hardly say Libra will be the new Federal Reserve and Mark Zuckerberg will not be the Fed. chairman through Libra project.

But Libra's services like payment and remittance will replace parts of the roles of traditional financial institutions. If Libra is big enough, Zuckerberg, to fulfill his ambition, could issue their own currency instead of US dollar backed stablecoin and provide more financial services to replace banks. It is a looming threatening to the Federal Reserve, banks and other financial institutions.

For other stablecoin projects, unless it is fully regulated. It introduced unregulated "credit" as stablecoin providers for several levels. (1) It is not full reserved, thus create more credit money. (2) It is not regulated, which can be used for illegal activities or stablecoin founders have the incentive to do so. (3)It is a scam.

Libra is a replacement for traditional financial networks like SWIFT

Libra is built upon blockchain technologies which has a much simpler network for payment and settlement. Bitcoin, as an open network, has run for more than 10 years without any major hacks. On the bitcoin, Ethereum, or other crypto blockchains, it is easy to move the crypto with low fees and high efficiency.

There are many vested benefits in traditional financial institutions. As a disruptive technology, blockchain has the potential to reshape the whole financial infrastructure.

What's more, as blockchain tokens are easy to store and move globally like you send an email, its influence can be beyond the country or region boundaries. This will undermine the adoption of fiat money. People in some countries where their currency is high fluctuated, tend to hold cryptocurrencies instead of fiat money. In negative words, it means to undermine financial stability.

Undermining the enforcement

Blockchain brings both transparency and privacy. If the blockchain-based assets are fully guaranteed by private key exclusively, this will undermine enforcement and the authority of court decisions. For example, if they want to confiscate some stablecoins, they need to have a private key, otherwise, nobody can virtually execute the confiscation.

Complex laws and regulations to follow

There are many monetary and financial related laws and regulations for public safety and national security and crackdown on crimes. And there are also privacy concerns. In Europe, they already issued GDPR. For any innovations, they must meet the requirements of both privacy and regulation. Globally, a regulatory consensus on a unified regulation that benefits all involved is not easy to issue out.

Facebook's Libra, as a globally widespread stablecoin, would have already had a great impact on the financial stability of many countries.