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Facebook's Libra Move Sparks Controversy In Italy Amid 'Parallel Currency' Row


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Facebook's Libra Move Sparks Controversy In Italy Amid 'Parallel Currency' Row

Central bankers and policymakers across Europe have not rushed to hit the 'like' button on Facebook Inc.'s announcement of its new cryptocurrency, Libra.

Bank of England Governor Mark Carney cautiously welcomed Libra's financial inclusion credentials, saying that the bank would treat it with an open mind. French Finance Minister Bruno Le Maire said that Libra must not become sovereign currency, while influential German MEP Markus Ferber warned of the dangers of Facebook becoming a "shadow bank."

But the news has hit a particularly raw nerve in Italy, where the populist government recently announced its intention to issue what its critics say is effectively a parallel currency to the euro, a move that would be considered illegal by the European Union, and one that both the Italian finance ministry and the European Central Bank want to prevent.

The Italian lower house of parliament approved a motion on May 28 recommending that the government issue small-denomination government bonds as a means of paying suppliers. These mini treasury bills, or "mini-BOTs," have been interpreted by some analysts as an attempt to create more room for government spending.

SNL Image

Italian deputy prime minister Matteo Salvini.

Source: Associated Press

ECB President Mario Draghi decried the proposal in June. Giovanni Tria, the Italian economy minister, has also spoken out against mini-BOTs on several occasions, most recently saying during a speech at a London conference that they were unnecessary and that they could "create problems in Europe," suggesting such a move would undermine investors' trust in Italy.

But Matteo Salvini, Italian deputy prime minister, said earlier this week that Italy would press ahead with its plans for mini-BOTs unless anyone else could come up with "a better idea," according to Reuters.

'Hot issue'

The same day that Facebook made the announcement about its cryptocurrency, the Italian central bank warned the public against the use of "false" or "parallel currencies" issued by platforms with banking functions. Its statement mentioned neither Facebook nor mini-BOTs specifically.

The topic of creating currency is a "hot issue" in Italy at the moment, according to Carlo Alberto Carnevale Maffè, Associate Professor of Practice of Strategy and Entrepreneurship at Milan's SDA Bocconi School of Management, and a commentator on Italian banking and finance.

Populist politicians and commentators in Italy have responded to the news of Facebook's cryptocurrency by calling out Draghi and senior European officials for not allowing Italy to create its own payment method:

"Populist politicians are crying foul about Libra, not because they think it is illegal, but precisely because they want to print their own money, mini-BOT, that is to say, small denomination govies [government bonds] to be used as a parallel payment system," Carnevale Maffè said.

In a public post on Facebook, Giorgia Meloni, leader of the right-wing political party Fratelli d'Italia, said that there was a contradiction in the fact that a private company is allowed to issue its own currency, and yet the Italian state is prevented from issuing mini-BOTs.

The California-based technology company hopes to launch Libra in 2020 but its plan has yet to be scrutinized by any regulators.

Commenting in the right-wing newspaper Libero, prominent academic Paolo Becchi, who teaches in the law faculty at the University of Genoa, suggested that Draghi and other senior European policymakers were exercising a double standard by remaining silent on Facebook's Libra at the same time as opposing Italy's mini-BOT plans.

"The public debate isn't really going into the nuances of cryptocurrency. Politicians are asking if Facebook is issuing payment instruments, why can't we do the same thing?" he said. "They are using this moment to whip up excitement among the public about Italian sovereignty in the area of money."

'Italexit' from the euro

The debate about mini-BOTs also takes place against the backdrop of the possibility of Italy leaving the euro, Carnevale Maffè said. Were Italy to leave the single currency, proponents of mini-BOTs have described them as a "spare tire" that would help to facilitate the switchover from the Euro back to the Lira, he said.

While "Italexit" is not explicitly on the cards for the anti-establishment coalition government of the League and the Five Star Movement, leaked policy documents from 2018 suggest that they had been actively discussing an exit from the single currency.

Outside Italy, the government's mini-BOT plans have been a source of concern. The team of analysts at Scope Ratings said in a June 17 note that while there was nothing inherently wrong issuing mini treasury bonds, there are "suspicions that the concept would ultimately see mini-BOTs turned into legal tender, operating as a parallel currency to the euro." This would have "serious political, legal and economic implications" for both Italy and for the single currency, the note said.

The Italian financial regulator, CONSOB, did not offer a direct response to questions about its position on Libra or mini-BOTs, but pointed to a June 14 speech given by its Chairman Paolo Savona, in which he expressed concern about private sector initiatives to create cryptocurrencies due to the disturbances that they could cause to the current monetary system.