The French finance minister, Bruno Le Maire, delivered a scathing rebuke to Libra, the Facebook-led digital currency initiative, in the Financial Times this morning. Coming on the heels of several U.S. companies' withdrawal from the initiative after they received threatening letters from Senators Sherrod Brown and Brian Schatz, Le Maire's is probably the most forceful attack on the Libra project to date by a high-ranking global policymaker.
The Frenchman does not mince words. He calls Libra "unacceptable," its proposed governance "unconscionable," and he rejects "a regulatory response" — hinting that governments should just not allow Libra to launch. Le Maire concludes by stating that financial innovation must "respect the sovereignty of states."
In fact, a careful reading of his op-ed suggests that Le Maire wants much more than that. He calls on central banks to develop their own digital currencies, which, as Fed Governor Lael Brainard reminded us in a speech yesterday, "typically refers to a new type of central bank liability that could be held directly by households and businesses without the involvement of a commercial bank intermediary." Le Maire seems to want central banks to become public depository institutions, so that people might eschew private intermediaries altogether.
It would be ironic if a private financial innovation, aimed at delivering the poor and unbanked of the world from their countries' unstable currencies, inefficient payments systems, and exclusionary financial regulations, ended up provoking even more restrictive government controls. But that is what Le Maire’s saber-rattling seems to point to. Le Maire sounds the ominous warning that "in fragile countries[,] where many don’t have access to a bank account or a stable currency, people could simply stop using the national currency and turn to private currencies instead." In other words, people might finally have better alternatives to their underperforming national financial systems! Quelle horreur!
Le Maire thus cleverly disguises an attempt to dramatically expand the role of governments in payments and banking as its opposite — an effort to push back against private encroachment on states' "political [and] monetary sovereignty."
Discerning readers shouldn't let crafty politicians fool them. The most innovative and stable financial systems in the world are ones where governments give competing, private firms scope to come up with new products that meet consumer needs, to rationally allocate credit, and to combat central banks' inflationary proclivities. "We cannot let China be the only player in this field," Le Maire warns. Whether China remains the only player is in large part up to political gatekeepers such as himself. But it would be a shame indeed if, in the process of competing with China, we were to adopt its top-down authoritarianism and politicized financial system.
In a BBC documentary some years ago, Robert Peston remarked upon a common French expression: Ça se fait pas – "That mustn't be done." That’s exactly the wrong attitude toward innovation, and one the rest of the world mustn't copy.