Facebook has begun talks with the top US derivatives regulator over its plans for a digital currency, in a sign of how the world's largest social media platform is laying the groundwork for an ambitious push in to payments.
Christopher Giancarlo, head of the Commodity Futures Trading Commission, said the commission was in "very early stages of conversations" with Facebook in an effort to understand whether the company's plans for a digital coin would fall under the regulator's auspices.
Facebook has accelerated its plans to create a new digital payments network that would allow users to send money to each other and buy things on the platform, its apps Instagram and WhatsApp and across the wider internet. As part of this, the company plans to introduce a "stablecoin", or a digital coin pegged to a fiat currency.
The Washington-based CFTC has authority over futures and derivatives, so any such financial instrument tied to GlobalCoin — the name reportedly given to Facebook's proposed version of a stablecoin — would fall under its scope.
The early talks with the CFTC come as Facebook approaches watchdogs and central banks to seek guidance on its plan for a digital coin at a time when many authorities have yet to draw up precise regulations for the so-called "digital Wild West".
"We're very interested in understanding it better," Mr Giancarlo said of Facebook's plans. "We can only act on an application, we don't have anything in front of us."
The bulk of the trading in bitcoin, for example, is done via futures rather than cash-based markets. It was too early to say whether GlobalCoin would be limited to the latter and therefore fall outside the CFTC's remit, said Mr Giancarlo, the outgoing head of the regulator.
Since Facebook's coin could be secured against the US dollar, currency futures might potentially remove the need for a derivative linked to GlobalCoin.
"That's very clever," said Mr Giancarlo of such a solution, adding that it would nonetheless leave some "basis risk", a term that describes a situation in which the price of an underlying instrument and its derivative do not move perfectly in sync.
One chief concern for regulators will be whether Facebook's project can stick to strict money-laundering and "know your customer" rules. The US Treasury's Financial Stability Oversight Council has a crypto working group that is examining issues including financial institutions' exposure to digital assets, and "illicit activity undertaken with digital assets".
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Facebook has spoken to the US Treasury in recent weeks to provide updates on the project, according to a person briefed on the matter. The Treasury declined to comment.
The prospect of digital currencies becoming more widespread is drawing scrutiny and interest from those keen to understand any wider potential ramifications for financial stability. Last month, Tobias Adrian, director of the International Monetary Fund's monetary and capital markets department, said that stablecoins fell under the definition of eMoney, and their adoption could be "extremely rapid — but . . . may raise significant risks". The IMF should have a role in surveillance of such coins, he added.
Mark Carney, governor of the Bank of England, discussed the project recently with Facebook as part of a broader meeting on the future of finance, according to someone briefed on the meeting. The BoE declined to comment.
Additional reporting by Chris Giles in London and Kadhim Shubber in Washington.
Written by: Laura Noonan and Hannah Murphy
© Financial Times