Facebook has to answer some tough questions about Libra

The presentation of Libra raised a couple of important fundamental and regulatory issues that need answering.

First of all, everyone should be thinking really hard if they want Facebook to be their payment services provider. Sure, it might be convenient, but you might be paying a high price with your data.

Facebook already knows more about yourself, your interests, your desires than even your closest friends. The one big item missing to complete the picture is financial information.

'Don't feed the beast'

If you combine your personal financial information with everything Facebook already knows about you, you become truly transparent. Facebook already is a data leech and the prudent way forward would be to starve rather than to feed the beast.

While Facebook knows a lot about its customers, it is very possible for everyone to set up a bunch of fake profiles.

Even if you do not go that far, many people do not use their real name on Facebook due to privacy considerations and that becomes an issue if you want to comply with anti-money laundering and anti-terrorist financing legislation.

While banks and other payment services providers have to follow detailed know-your-customer policies for good reasons, Facebook does not verify the identity of its users.

Combine that with a global payment system and you extend an open invitation to money launderers, terrorists and tax evaders.

This problem is amplified by Facebook's scale.

With a user base of more than two billion users, Facebook is a different animal from your average next-door FinTech company. A currency or a payment service that could be used by more than a quarter of the world's population instantaneously becomes systemic and needs some sort of regulatory framework.

The supervisor cannot be an obscure organisation that is based in Switzerland and that is run by a group of private corporations that is not accountable to anyone.

If Libra was really picked up to the degree that its backers imagine, it would pose a challenge to current payment infrastructure and also to the way monetary policy is conducted.

G20 must discuss

It would require liquidity guarantees that historically only central banks have been able to supply. Therefore, a project such as Libra has to be high up on the agenda of international regulators and is also an issue worthy of discussion during the G20 meeting.

It is not only regulators' or central banks' interests that are at stake, but most importantly in the interest of consumers. The experiences many have had with dodgy initial coin offerings and volatile coins during the boom and bust cycle of traditional cryptocurrencies, have made some early adopters wary.

Even if Facebook solves the governance issues that have troubled many first-generation cryptocurrencies, there are still some pertinent investor protection issues to be addressed.

Libra's backers ensure us that there will be no volatility to speak of as Libra will be backed by a basket of currencies. If those assets are physically held, this raises the question of who the fiduciaries are and how the users' deposits will be protected.

In Europe, anyone who has a savings account can be assured that his savings are protected as we have set up an elaborate deposit protection mechanisms in the post-crisis years.

With crypto-currencies, no one can be quite sure what happens in a moment of crisis. History shows us that even the strongest looking currency pegs can be broken (just ask the Bank of England if they recall a certain George Soros) and an artificial currency that does not come with the liquidity promise provided by a large central bank could be an attractive target for speculators.

All in all, the presentation of the Libra White Paper has raised quite a few questions that regulators, preferably on the global level, need to address urgently in order to prevent a technology behemoth such as Facebook from operating in a legal vacuum.

It has been a mistake that the OECD, the G20 and also the European Commission have been kicking the can down the road for a quite a while when it comes to the question of how to effectively regulate virtual currencies.

Hopefully, the scale and possibly disruptive effect the Libra project could have will provide a new sense of urgency. A good moment to kick off the debate would be this week's G20 summit.