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Fear of Facebook's Libra cryptocurrency initiative dominates discussion at tense G7 meeting in France

Bloomberg, Kyodo, Reuters

Fear of Facebook Inc.’s Libra initiative proved to be common ground for global finance chiefs as they met to discuss more contentious issues, from digital taxation to the economic outlook, on Wednesday.

“Libra is on everyone’s mind,” German Finance Minister Olaf Scholz told reporters at the gathering of Group of Seven (G7) counterparts near Paris. Bruno Le Maire, his French counterpart and host, said that a private company shouldn’t “have the possibility to create a sovereign currency.”

The remarks at the Chateau de Chantilly reveal the extent of the international backlash building against the proposed digital currency, just as U.S. lawmakers join the bandwagon of criticism against Facebook in congressional hearings this week.

Central banks have individually treated Libra with growing caution since its planned launch was announced on June 18, though they have yet to unify with a coordinated response.

“Finance ministers and central bankers all have serious concerns on whether all rules have been followed and if regulations need to be changed to guarantee financial stability,” Scholz said. “Swift action is required” to address the Libra issue, he said.

Le Maire has made the matter the center of the agenda for the G7 gathering. Regulators are worried about Facebook’s capacity to leverage its advanced technology and gigantic customer base to create a currency that would challenge the sovereignty of nation states.

“There is a general sense of concern, and this concern will be translated into action,” Italian Finance Minister Giovanni Tria told reporters, stressing that the issue is one of the most pressing under discussion.

“Users would find (Libra) useful in making international money transfers because it would be cheaper than the current system,” Finance Minister Taro Aso told journalists separately. “But whether it will be reliable is another issue,” he added.

One official attending the meeting, speaking on condition of anonymity because the discussions are private, said it is possible that the G7 will publish a joint statement on Libra.

Libra might be one of the few areas of agreement at the summit, as officials clash over most other aspects of the international economic order. France is at odds with the U.S. on a French plan to impose a tax on digital revenues of major companies — another theme at the G7.

U.S. Treasury Secretary Steven Mnuchin has already bashed Facebook’s Libra proposal, and U.S. President Donald Trump criticized the firm’s effort via Twitter last week. Federal Reserve Chairman Jerome Powell told lawmakers this month that he has “serious concerns” about the proposed token and cast doubt on the company’s timeline for launching it by next year.

“I fully share the concerns expressed by Mnuchin,” Le Maire said. “We cannot accept any exchange currencies with the same kind of power and same kind of role as a sovereign currency.”

Some policymakers have said Facebook’s potential to build a cheap, fast international payments system would highlight their own deficiencies. Immigrant laborers, for example, can face high and frequent costs when sending funds back to their families in their country of origin.

“It’s true today that some cross-border payments are too complex, too slow and too expensive,” Bank of France Gov. Francois Villeroy de Galhau said when answering questions on Libra at a committee hearing in the French Senate last week. “There is a call to improve cross-border transfers.”

Le Maire and Villeroy de Galhau have asked European Central Bank Executive Board member Benoit Coeure to prepare a report on Libra, a summary of which is expected to be published Thursday.

“I can understand why finance ministers and monetary authorities might have reservations” about Facebook, given its history, said Jacob Kirkegaard, senior fellow at the Peterson Institute for International Economics in Washington, D.C. The question is, “Are they the right entity to do it?”

Not all officials attending the G7 meeting have been as allergic to Facebook’s initiative.

Bank of England Gov. Mark Carney, a former head of the Financial Stability Board, has said that his institution approaches the matter with “an open mind but not an open door,” while the U.K.’s finance minister, Philip Hammond, has said that “if it works, and it’s properly regulated, it could be transformative.”

International Monetary Fund acting chief David Lipton, speaking on the eve of the gathering in France, cautioned that if Libra is “squelched” based on a simple view of the risks, that might block innovation.

“You never know at the beginning how valuable a technology will be,” he said Tuesday. “It requires experimentation and adaptation over years and often decades.”

G7 finance ministers are also concerned about how best to tax big tech companies, with France keen to use its presidency of the two-day meeting to get broad support for ensuring minimum corporate taxation.

G7 governments are concerned that decades-old international tax rules have been pushed to the limit by the emergence of firms like Facebook and Apple, which book profits in low-tax countries regardless of the source of the underlying income.

The issue has become more vexatious than ever in recent days, as Paris defied U.S. President Donald Trump last week by passing a tax on big digital firms’ revenues in France despite a threat from Trump to launch a probe that could lead to trade tariffs.

Their bilateral dispute aside, France and the United States are in favor of rules ensuring minimum taxation as part of an effort among nearly 130 countries to overhaul international tax rules.

Although a G7 agreement would set the tone for the broader push, an agreement among all of the G7 ministers on a minimum rate or range of rates is likely to prove elusive as the U.K. and Canada have reservations, a French Finance Ministry source said.

“If we don’t agree at the G7 level on the broad principles for taxing digital companies today or tomorrow, then quite frankly it will be complicated to find among 129 countries at the OECD (Organization for Economic Co-operation and Development),” Le Maire said.