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Bank of England's Carney warns Libra: 'This is not learning on the job stuff'

SAN JOSE, CALIFORNIA - APRIL 30: Paper circles with the Facebook logo are displayed during the F8 Facebook Developers conference on April 30, 2019 in San Jose, California. Facebook CEO Mark Zuckerberg delivered the opening keynote to the FB Developer conference that runs through May 1. (Photo by Justin Sullivan/Getty Images)
Paper circles with the Facebook logo are displayed during the F8 Facebook Developers conference. Photo: Justin Sullivan/Getty Images

The Bank of England’s highest risk assessment group has pledged to investigate potential threats posed by Facebook’s (FB) new cryptocurrency project Libra and other digital “tokens.”

“This is not learning on the job stuff,” Bank of England governor Mark Carney said at a press conference on Thursday. “It’s got to be rock solid from the start or it’s not going to start.”

His warning came as the central bank’s Financial Policy Committee (FPC) said in a report it would “asses risks to the UK financial system associated with the use of tokens and other assets.”

The report specifically called out Libra. Carney said the project posed a “wide range of risks.”

‘Standards are in a different zip code’

LONDON, ENGLAND - MAY 2: Governor of the Bank of England Mark Carney speaks during an Inflation Report Press Conference at the Bank of England on May 2, 2019 in London, England. (Photo by Matt Dunham - WPA Pool/Getty Images)
Governor of the Bank of England Mark Carney. Photo: Matt Dunham/WPA Pool/Getty Images

Facebook publicly announced its much-anticipated cryptocurrency project Libra in June. The social media giant said it was setting up a consortium of 28 companies, including Visa, MasterCard, Uber, and eBay, that would oversee the launch of Libra next year.


The cryptocurrency aims to be a global currency, backed by a basket of assets, that will help millions of people around the world currently outside of traditional financial services access basic banking.

READ MORE: Royal Bank of Scotland 'in discussions' with Facebook about Libra

“There are a very broad range of issues. It’s either successful or it isn’t. If it successful, it becomes systemic because there are a large number of users,” Carney said on Thursday.

“If it’s a systemic payment system ... You have to be on all the time. You can’t have teething issues. You can’t have people losing money out of their wallets. The standards are in a different zip code than the standards often in other forms of technology.”

Carney flagged risks around managing the assets that will back the currency and ensuring that it maintains a stable value.

“There can’t be any basis risk, there can’t be any rebalancing risk, there can’t be anything that could give rise to speculation,” he said.

The governor also mentioned risks that Libra could be used for money laundering and terrorist financing.

‘Raising the bar’

SAN FRANCISCO, CA - SEPTEMBER 12:  Vice President of Messaging Products at Facebook David Marcus speaks onstage during TechCrunch Disrupt SF 2016 at Pier 48 on September 12, 2016 in San Francisco, California.  (Photo by Steve Jennings/Getty Images for TechCrunch)
Facebook executive David Marcus is heading up the Libra project. Photo: Steve Jennings/Getty Images for TechCrunch

Facebook’s announcement of Libra sparked an immediate backlash from politicians and regulators around the world amid concerns about everything from monetary policy implications to data sharing and privacy.

Carney has been one of the most welcoming advocates of the project. He said it could “substantially improve financial inclusion and dramatically lower the cost of domestic and cross border payments.” However, he said in the same speech “the terms of engagement for innovations such as Libra must be adopted in advance of any launch.”

READ MORE: Facebook warned against ‘move fast and break things’ approach to Libra

Carney said on Thursday that regulators “recognise that this is trying to solve a series of issues that exist in the system.”

“It’s way too expensive to do domestic payments, it’s way too slow and that hurts consumers and businesses, it’s far too expensive to send money cross-border, and there are huge financial inclusive issues related to that,” he said.

“While we’re trying to address all these issues, we have to acknowledge the issues that it is trying to solve. If nothing else, this serves the purpose of raising the bar of expectations about what our citizens deserve.”

How Libra could impact banks

Libra was name-checked in the Bank of England’s bi-annual Financial Stability Report, which was published on Thursday.

“A group of technology, e-commerce, payments, and venture capital companies recently announced their intention to develop a new payments infrastructure based on an international ‘stablecoin,’ known as Libra, which could be exchanged between user on messaging platforms and with participating retailers,” the report said.

READ MORE: Facebook's 'significant' Libra under scrutiny from new UK task force

The FPC, which authored the report, said it would for the first time look at how products like Libra “might affect the supply of credit to the wider economy and the dynamics of bank funding in stress.”

The Financial Stability Report looks at potential risks to the UK banking system to ensure it is prepared for any shocks. The review aims to avoid a repeat of the 2008 financial crisis.

The report, published Thursday, warned that a “no-deal Brexit” is getting more likely, but said the UK banking system would be able to withstand any disruption from no deal.


Oscar Williams-Grut covers banking, fintech, and finance for Yahoo Finance UK. Follow him on Twitter at @OscarWGrut.

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