Why Libra's recent hires could help it court central banks

It appears that the world's anti-Libra lawmakers and regulators have all but won.

The stablecoin project launched last summer, backed by an array of well-known businesses and an ample supply of media attention thanks to Facebook's involvement. But the project soon faced a barrage of criticism from public officials and regulators, and eventually, some of the more finance-centric members of the nascent Libra Association opted to exit. Representatives from Facebook were also called before Congress to explain what, exactly, they were trying to do with the stablecoin initiative.

Fast forward to mid-April of this year, we got the Libra Association's long-rumored move to abandon a multi-currency model in favor of multiple tokens, each backed by one kind of government-issued currency. As David Marcus noted in a tweetstorm, the adaptation of the original plan came "after engaging with key stakeholders globally." Suffice to say, some of those stakeholders include central banks like the Federal Reserve, who, according to Fed chair Jerome Powell, felt the digital currency fire in the wake of the announcement.

Which brings us to the Association's major hires this month: a former FinCEN director as its general counsel and HSBC’s top lawyer as its CEO. These hires represent what might be the loudest signal possible that Libra is serious about building, to quote Marcus, "a comprehensive network-level system around anti-money laundering (AML), Combatting the Financing of Terrorism (CFT), and sanctions enforcement."

Robert Werner, whose hiring was announced earlier this month, comes with an extensive pedigree on the financial regulation front. In addition to serving as head of FinCEN, Werner also served a stint as head of the Office of Foreign Assets Control, as senior counsel to the Under Secretary of the Treasury for Terrorism and Financial Intelligence, and in the Office of General Counsel as assistant general counsel for enforcement and intelligence.

Simply put, if you wanted to demonstrate your AML/KYC chops, Werner's probably your guy.

This all might be pointing to the realization of a goal envisioned in the revised Libra white paper. The Block noted in its coverage at the time that the paper included a fair bit of ink about central bank digital currencies and how the network could integrate with them.

As the paper noted:

"Moreover, our hope is that as central banks develop central bank digital currencies (CBDCs), these CBDCs could be directly integrated with the Libra network, removing the need for Libra Networks to manage the associated Reserves, thus reducing credit and custody risk. As an example, if a central bank develops a digital representation of the US dollar, euro, or British pound, the Association could replace the applicable single-currency stablecoin with the CBDC."

Reading between the lines, this would signal aspirations for Libra to serve as a hub for CBDCs. And if China's digital currency work is any indication, private-sector participation is likely as the world's central banks move from ideation to construction on their respective projects.

The big question – apart from if and when Libra will actually launch – is how integrating or assimilating CBDCs will actually work in practice. The white paper refers to this functionality as "a design principle we aim to deliver." So they sound serious about it, but it hasn't been built yet.

Meanwhile, central banks are inching ahead. As my colleague Mike Orcutt reported last week, Cambodia's central bank is plowing ahead with Project Bakong, an ambitious mobile-central digital currency based on Hyperledger Iroha. That storyline offers a glimpse into what factors are driving CBDC development and some of the preferences – namely on the technology side – that such institutions are demonstrating.

If the hires and statements in the past few months are any indications, Libra's backers want the world to know they take financial regulation very seriously – and they probably hope that the central bankers are listening.