The Bank of International Settlements (BIS) has shown some concerns relating to Facebook crypto token, Libra. According to the annual report of international banking authority, the BIS, often referred to as ‘the bank of banks’, is concerned that Facebook’s Libra coin may disrupt the banking industry when it enters the financial space later this year.
The report titled “Big tech in Finance” discusses recent venture of big tech companies into the financial sphere. The report argues that these companies venturing into financial services can cause a massive disruption in the space.
There are a few benefits like these companies can use their universal reach to serve places where traditional banks are not available, these companies can also utilize big data and analytics in the loan granting process, assessing the riskiness of borrowers thus reducing the reliance on collateral. The report says:
As such, big techs stand to enhance the efficiency of financial services provision, promote financial inclusion and allow associated gains in economic activity.
At the same time, the report highlights a few concerns about the entry of these companies into the financial services sector. For starters, their entry can be a serious blow to consumers. Big tech companies have the potential to create their own payment systems, and by leveraging their already humongous user base they can easily bring millions of people in the fold.
However, the payment system is part of the essential public infrastructure thus, making the matter of public interest. Big corporations controlling the financial sector can be catastrophic for the general public. Tech firms keep the interest of their stakeholders in mind, the interest of the general public is not really important to them.
The list of disadvantages doesn’t stop there, the report argues that regulations are not the only thing that is of concern here. These companies if unregulated would amass a lot of power, and they’ll have the potential to become more dominant than they are now. They will use the “advantages afforded by the data network activities loop” to gain more influence over the financial space, this will create a lot of data privacy issues. Considering big tech’s current problems with data privacy this can have catastrophic effects. The report further says:
“Public policy needs to build on a more comprehensive approach that draws on financial regulation, competition policy, and data privacy regulation. The aim should be to respond to big techs’ entry into financial services so as to benefit from the gains while limiting the risks. As the operations of big techs straddle regulatory perimeters and geographical borders, coordination among authorities national and international is crucial”
Facebook’s Libra and Disruption in the Financial Space:
Facebook published the white paper for its Libra cryptocurrency on 18th June 2019, since then authorities all around the world are going after the crypto with everything they have. The United States Senate ordered Facebook to stop development activities on Libra and scheduled a hearing in July, to know about how Facebook will handle the data privacy issues. France and other G7 nations have already set up a task force to examine potential issues regarding Libra.