The bankers have explicitly stated that Facebook’s Libra will pose huge threat to the consumer demand for deposit accounts, payment volumes, and business models built on privacy.
Well, if the regulatory scrutiny on Facebook‘s Libra cryptocurrency was not enough, even bankers have jumped in to pull down the Libra project. Recently, the United States Federal Reserve had asked some of the largest banking institutions in the country about their stand on Libra.
Responding to it, the bankers have expressed risks posed by Libra like a potential decline in the deposit accounts as well as the banks’ payment volumes. As per the Bloomberg report, the banks expressed their views during the Federal Advisory Council meeting last month in September. In a joint statement, the banks said:
“Facebook is potentially creating a digital monetary ecosystem outside of sanctioned financial markets — or a ‘shadow banking’ system. As consumers adopt Libra, more deposits could migrate onto the platform, effectively reducing liquidity, and that disintermediation may further expand into loan and investment services.”
The banks admitted that Libra and other stablecoins pegged to the fiat currencies pose a big threat to their business model. The banks said that the arrival of such digital currencies in the financial system will potential dry-up their payment volumes and threaten their businesses build on privacy.
Privacy concerns are major issue for Facebook when it comes to launching the Libra Project. To make the Libra ecosystem decentralized, Facebook has also brought twenty other founding members in the Libra Association. Facebook has assured regulators that it will not be the single entity controlling the entire project. However, Facebook’s recent association in compromising the user-data privacy, in the Cambridge Analytica scandal, is hurting the company’s image badly.
The bankers also stressed that Facebook’s Libra proposal can have major implications on the national monetary policy. They said: Facebook has the “potential to reduce the ability of states to monitor, manage and influence local economies”.
The Latest Libra Developments
Despite massive criticism and no regulatory support, Facebook has been patiently working ahead on its Libra launch. There are a number of developments over the last two months.
Last month, over twenty central bank executives met the Libra Association in Basel, Switzerland, to discuss the prospect for Libra. Besides, providing further transparency in the project, Facebook also released the list of fiat currencies pegged to Libra. The list includes some of the widely used fiat currencies across the globe but excludes the Chinese Yuan. As we know, China is working on its own central bank digital currency.
On the other hand, the Libra Association has also assured central banks that the Libra cryptocurrency won’t replace existing fiat. Despite high regulatory scrutiny, Facebook also has new backers for the Libra project. Recently, tech giant IBM expressed the desire to work with Facebook on the Libra project.
Moreover, ECB’s executive board member Benoit Coeure said that Facebook’s Libra can help solve issues within the payments system.
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