WASHINGTON – The Group of 20 major economies agreed Friday that global digital currencies should not be rolled out unless “serious” risks related to 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, the G20 finance chiefs also showed support for ongoing efforts to create international taxation rules to plug loopholes used by IT giants, such as Google LLC, to reduce their corporate taxes.
The two issues have been drawing global attention as countries seek to tackle challenges arising from technological innovation, particularly digitization.
“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 G20 said in a statement, 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, which has 2.7 billion users, stirred controversy in June with its announcement of plans to launch Libra next year in a bid to create a new global payment system.
The social media giant believes that the Libra system will help people, especially those in developing countries who have no access to traditional banks but have mobile phones, to send money overseas at a low cost. Around a billion people have no bank account but have a mobile phone, according to the company.
Cryptoassets, the best-known of which is bitcoin, have not yet been 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.
Facebook has said Libra’s value would be stable because it would be pegged to a basket of major currencies such as the dollar, euro and yen. But various concerns have remained unaddressed.
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 G20 finance chiefs and central bank governors, the planned launch of Libra as 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 news conference with Bank of Japan Gov. Haruhiko Kuroda after the meeting. The two chaired the talks.
“I don’t think stablecoins should be allowed to be issued while countries are considering how to regulate it,” Kuroda said.
On global taxation rules, the G20 said in a separate statement that it “welcomed” a proposal published by the Organisation for Economic Co-operation and Development earlier in the month.
The proposal is intended to advance international negotiations to ensure large and highly profitable multinational enterprises, including digital companies, pay tax wherever they are conducting significant consumer business and generating profits.
Large U.S. tech companies, such as Google and Facebook, have faced criticism that they are not paying their fair share of taxes, as they can book profits in low-tax jurisdictions.
At the June G20 summit in Osaka, 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.
The G20 comprises 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.