Just recently the European Central Bank (ECB) has yet again commented on the Facebook Libra project and now they are saying that “it’s too dangerous” and regulators need to improve the way they work.
Benoit Coeure, the executive board member of the ECB, just commented on Facebook’s Libra saying that financial regulators must act faster regards this issue and, in general, that Libra shouldn’t be allowed and that “it’s too dangerous”. He believes that financial regulators need to act fact upon these tech giants’ financial projects as they might potentially harm the monetary system.
“It’s out of the question to allow them to develop in a regulatory void for their financial service activities because it’s just too dangerous,” Coeure said on Sunday in Aix-en-Provence in southern France. “We have to move more quickly than we’ve been able to do up until now,” commented Benoit Coeure.
Since Facebook announced it’s Libra project, many policymakers have acted very harshly addressing this revolution-like project of Facebook. There are three main financial regulators in the U.K. working together on ways how to respond to this matter. The governor Mark Carney has commented that the Bank of England approaches Libra “with an open mind but not an open door”. This sentence itself describes how central banks along with regulators are looking at Libra. “Yeah, that’s a good idea, but we won’t let it happen” sort of style.
Also, Washington has even ordered to halt the development of the project in order to deal with the “profound questions” that it raises. David Marcus who is the executive leading the project will testify this month regards the initiative.
According to Benoit Coeure, he believes that the development of digital currencies such as Libra and others simply points out to the failures of the banking system to develop and adopt new technologies:
“All these projects are a rather useful wake-up call for regulators and public authorities, as they encourage us to raise a number of questions and might make us improve the way we do things.”
Libra Threatens Stability of Financial Systems
While for many this project seems like a great new technological breakthrough which could potentially help millions, not billions of people to solve their financial incapabilities, central banks think this threatens the stability of financial systems.
Korean Financial Services Commission (FSC) has revealed that they are looking into possibilities that might occur “if 2.4 billion Facebook users worldwide transfer one-tenth of their bank deposits to Libra”.
They say that in this scenario banks’ solvency would diminish along with their loan reserves. And that would represent the threat to emerging markets which capital would relocate out of those countries.
When speaking about the remittances issue that Facebook wishes to solve, the FSC expects that Libra could potentially limit central banks’ ability to control international capital movements. And in the case of Libra allowing almost free overseas transactions, the trillions of won in revenues for the South Korean banks’ would be significantly reduced. Additionally, they believe that the commercialization of Libra is higher than other cryptocurrencies in the market.
Moreover, the FSC, of course, said that Facebook’s Libra might be widely used for money laundering without banks properly regulating it.
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