The Central Bank Business Model Is Under Attack

This post is part of CoinDesk’s 2019 Year in Review, a collection of 100 op-eds, interviews and takes on the state of blockchain and the world. Jalak Jobanputra is founder of FuturePerfect Ventures.

A year ago, I predicted 2019 would be the year of regulation in the crypto sector, building upon the increased scrutiny we saw in 2018 after the 2017 ICO boom and bust.

2019 didn’t disappoint: From Switzerland to Korea to France to Lithuania came proposals to regulate crypto assets. Towards the end of the year China, which had banned ICOs and cryptocurrencies in 2017 but promoted blockchain technology, quickly cracked down on unregulated exchanges. Meanwhile, the U.S. Securities and Exchange Commission fined or settled with ICOs that had not registered as securities.

Against this backdrop, Facebook announced Libra, which spurred a greater global reaction than anything we’ve seen in the sector to date. The G7 established a working group on Libra and other stablecoins. France and Germany discussed a Libra ban.

The introduction of Libra took the concept of a “sovereign” digital currency mainstream. Although different from a central bank-issued digital currency (CBDC), Libra, if launched as originally conceived, is positioned to become a major alternative payment mechanism to traditional fiat, perhaps more so than cryptocurrencies such as bitcoin. Facebook has for many years attempted to enter the payments space. By corralling its current properties (including WhatsApp and Instagram), billions of global users as well as its announced consortium partners, Facebook would be able to reach scale in payments and create new revenue streams without officially becoming a bank.

Thanks to Facebook, the central banks suddenly took notice of the threat a privately backed digital currency would make to their business model.  Central banks use monetary policy to manage their economies via inflation control and credit and, increasingly, cross-border trade. If an independent…

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