Facebook’s upcoming cryptocurrency Libra poses a threat to the stability of financial systems, according to South Korea’s financial regulator, the Financial Services Commission (FSC).
As reported by industry website Coindesk, the watchdog has examined a scenario where “2.4 billion Facebook users worldwide transfer one tenth of their bank deposits to Libra”. Should this scenario materialise, it would compromise banks’ solvency, as well as their loan reserves. It would represent a risk to emerging markets, as capital would be moved out of those countries.
The FSC highlighted a number of other potential issues which could arise if Libra becomes widely adopted. These include limiting central banks’ ability to control international capital movements, as well as the effectiveness of monetary policy. The watchdog also expressed concerns over the potential for using Libra for money laundering. Overall, the commission deemed Facebook’s crypto project to be a major threat to the traditional banking industry and noted that “a large financial institution, such as Goldman Sachs or JPMorgan” had refused to participate in the project.
The watchdog also thinks that Libra has a greater chance of finding commercial success than other cryptocurrencies, due to its social media services which boast billions of users. The FSC clarified that the report was to “facilitate the understanding of the press and other media” on overseas trends and not the regulator’s official opinion on the upcoming cryptocurrency.
Officially announced last month, Libra has already raised alarms among regulators and authorities, around the world. In the US, a group of privacy watchdogs published an open letter urging the US Congress to halt the development of the project until concerns over its impact on national sovereignty, corporate power, consumer protection and others were addressed. Facebook has also faced similar calls from US lawmakers.
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