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The US Federal Reserve, the country’s central banking entity, recently called up the nation’s biggest banks to present their views regarding the launch of Facebook’s digital currency project Libra. Not surprisingly, most of them turned out to be negative and some even said that it could be a potential threat to monetary sovereignty.
The representatives of the banks asserted, as it is showed by the Federal Advisory Council protocols:
“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.”
Facebook’s CEO, Mark Zuckerberg has already received an open letter from several Congress members asking him to stop the development of Libra. Even House Financial Services Committee Chairwoman Maxine Waters has also released a statement in which she requested Facebook to pause the development of Libra.
Now, the Fed chairman Jerome Powell and vice-chairman of supervision Randal Quarles have also warned that the forthcoming Libra cryptocurrency must comply with the highest standards of rules and regulations.
The banking executives who were called upon to present their views have sighted several challenges that the banking and financial industry might face due to the rise of Libra and other stablecoins that are backed by fiat currencies. The experts told the Federal Reserve that the banking industry might suffer from decreased demand for deposit accounts, lower volume of bank payment transactions and few other concerns of users’ privacy.
The group of banking was established to assist the Federal Board on economic and financial matters back in 1913. This year the group includes Brian Moynihan of Bank of America Corp., chief executive officers Rene Jones of M&T Bank Corp., and Beth Mooney of KeyCorp.
International Regulatory Challenges for Libra
The Libra crypto project is primarily under development in the crypto-friendly country Switzerland and its distribution will be managed by a Geneva-based organization known as the Libra Association. Hence, Facebook will have total control over its distribution and management, which doesn’t fully align with the decentralized nature of cryptocurrency. That’s partly what triggered the situation of panic among financial experts across the globe.
In addition to that, the Libra crypto project has already been bashed in Europe. France has already declared that it will ban Libra and its finance minister said that France will not allow Libra to operate on European soil. The German Finance Minister Olaf Scholz also condemned Facebook’s digital currency aspirations earlier this month, stating: “A core element of state sovereignty is the issuance of currency, we will not allow private companies to do it.”