- Another Red flag over Facebook’s proposed digital currency
- Facebook’s Libra could pose a threat from criminals – Lael Brainard
Still on the regulatory issues stopping the launch of Facebook’s Libra, the Federal Reserve Governor Lael Brainard in a recent press release of the dangers that the digital currency planned by social networking giant Facebook Inc. could pose. According to Brainard, the proposed currency could pose danger to users and financial institutions while providing a possibly valuable tool to criminals.
In a text of a speech she delivered on Wednesday in Frankfurt, she went thus: “Libra, like any stablecoin project with global scale and scope, must address a core set of legal and regulatory challenges. A significant concern regarding Facebook’s Libra project is the potential for a payment system to be adopted globally in a short period and to establish itself as a potentially new unit of account.”
Brainard recognized that development toward private cryptocurrencies has driven central banks to inspect the viability of digital currencies. She disputed, though, that central bankers may be better off refining the options for real-time payment methods.
“A more relevant question may be whether some intermediate solutions may be able to offer the safety and benefits of real-time digital payments based on sovereign currencies without necessitating a radical transformation of the financial system,” she said.
Facebook’s Libra Could Pose Threat from Criminals – Lael Brainard
Facebook started facing issues with central banks in June when it announced its plan to develop a digital currency. Fed Chairman Jerome Powell stated then that the proposed currency would encounter regulatory problems in the U.S. The European Central Bank’s Yves Mersch, a member of the bank’s executive board, termed Libra as “beguiling but treacherous.”
Brainard raised a series of red flags in her text speech, starting with the dangers of users used to the security of banks that provide fraud protections and government deposit insurance. Also, she stated that digital currencies could have major effects on financial stability. “If not managed effectively, liquidity, credit, market or operational risks, alone or in combination, could trigger a loss of confidence and run-like behavior,” she said.
To aid her point, she explained that a popular digital currency, either a private-sector or independently owned could pose negative effects for monetary policymakers in smaller economies. “In many respects, these effects may be similar to dollarization,” she stated, referring to the use of U.S. dollars as the ideal currency over the local currency in some countries.
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According to her, because of Facebook’s global reach, its proposed digital currency could signify a special danger. “With nearly one-third of the global population as active users on Facebook, the Libra stablecoin project stands out for the speed with which its network could reach global scale in payments,” she said.