The Libra Association, created by Facebook to launch its new cryptocurrency, kicked off its first council meeting in Geneva on Monday, despite defections by previous supporters like Visa and Mastercard.
The meeting also comes as the planned Libra global currency faces swelling criticism from regulators, and reported warnings from the G7 group of nations that it poses a threat to the global financial system.
Following Monday’s meeting, the non-profit association was due to announce its founding membership and provide more details on how it plans to proceed.
Last month, it voiced hope that the number of companies backing it when it opened for business would swell from an initial 28 to “well over 100” companies.
But instead the list has shrunk, after more of its initial backers abandoned the alliance amid swelling criticism from regulators around the world on the planned Libra global currency.
Credit card giants Visa and Mastercard, online marketplace eBay and digital payments firm Stripe each announced Friday they had changed their minds about being founding members of the association, following a similar recent announcement by digital payments firm PayPal.
Libra Association confirmed Friday that the companies would no longer be founding members, but said that it would continue building an alliance of businesses, social-good organisations, and others to implement the cryptocurrency.
Threat to financial stability?
The membership departures came after US senators sent letters to several financial firms noting that they could face “a high level of scrutiny from regulators” if they participated in the new currency plan.
French economy and finance minister Bruno Le Maire has warned that under current circumstances, Libra posed a threat to the “monetary sovereignty” of governments and could not be authorised in Europe.
Facebook executives have, however, claimed the new digital coin could help lower costs for global money transfers and help those without access to the banking system.
Facebook chief Mark Zuckerberg is set to testify at an October 23 hearing in the US House of Representatives on the Libra plan.
But in a fresh blow, a draft G7 report has outlined nine major risks posed by such digital currencies, according to the BBC.
The report, due to be presented to finance ministers at IMF’s annual meeting this week, did not single out Libra but referred to “global stablecoins” with the potential to “scale rapidly” as posing a range of potential problems.
Stablecoins are seen as more steady than cryptocurrencies like Bitcoin, since they are pegged to traditional currencies such as the US dollar or the euro.
But the G7 draft report reportedly cautioned that such currencies could pose problems for policymakers setting interest rates, and could threaten financial stability if users suddenly suffer “loss of confidence” in the digital currency.
Randal Quarles, the head of the Financial Stability Board (FSB), which oversees regulation among G20 economies, also sent a letter to G20 finance ministers Sunday warning that “global stablecoins could pose a host of challenges to the regulatory community.”
This, he wrote, was “not least because they have the potential to become systemically important, including through the substitution of domestic currencies.”
“Stablecoin projects of potentially global reach and magnitude must meet the highest regulatory standards and be subject to prudential supervision and oversight,” he insisted.