Facebook’s crypto project Libra was announced just a few months ago. Since then, the crypto project has received severe opposition from banks all over the world. Recently, some of the biggest banks of the USA came forward to unleash criticism on Facebook’s project, Libra.
Federal Reserve (FED) enquired responses on Libra from different banks located in the U.S. While the general sentiment of banks showed disapproval for Libra, Facebook was accused of making a ‘shadow banking’ system. The banks responded:
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.
Apart from Libra, the banks also presented drawbacks of similar stablecoins pegged to one or more currencies. They explained risks associated with stablecoins that were capable of reducing demand-deposit accounts and bank payment volumes, thereby, challenge the bank business model.
There were a total of 12 bank executives, including Brian Moynihan of Bank of America Corp, Rene Jones of M&T Bank Corp. and Beth Mooney of KeyCorp, who advised the FED regarding Libra. According to the aforementioned members of the advisory board, Facebook could bring implications on national monetary policy as well. The members continued that Libra, particularly, was capable of reducing the ability of states to influence, monitor and manage local economies.
Previously, the European Union (EU) also showed concerns against Libra. The EU even went ahead to organize a session for questioning Libra which they thought could threaten the European banking and financial system. At that time, representatives of about 26 banks were invited to attend the session and investigate Libra. Apart from questioning Libra, the banks also decided to get a statement on Libra from its founding members.
Facebook kept away its crypto project from the public for a long time. But when the social media giant released Libra’s whitepaper, a wave of criticism from the banking sector rose. Within the next 24 hours, the U.S congress called representatives of Libra for a hearing.
A few weeks ago, Libra was not spared by French Finance Minister, Bruno Le Maire, who straightforwardly stated that Libra won’t be authorized in the European region. During his speech at the OECD conference, he clarified that Libra posed a threat to the sovereignty of the government.
Last month, German Finance Minister, Olaf Scholz also made it clear that there was no room of acceptance for Libra. Endorsing only one currency, Euro, it was suggested that German banks along with other authorities and baks were working together to encounter Libra.
As Facebook has a huge fan base of billions of users, one can only think of the impacts of its crypto project, Libra. This explains the unrest and unease existing among regulators, aiming to somehow introduce regulations for cryptocurrencies such as Libra. In the past, Libra gained the attention of the U.S President, Donald Trump, who then took over to Twitter to share his take.
….Similarly, Facebook Libra’s “virtual currency” will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National…
— Donald J. Trump (@realDonaldTrump) July 12, 2019
Unlike other stablecoins, Libra pegged to several fiat currencies can trigger mass adoption for cryptpocurrencies. As the inclusion of Facebook in crypto space widens and expands the environment, governments of different countries can’t bear to give a free hand to Facebook. That’s why efforts are laid to control Facebook.
Although Facebook will not be exhibiting direct control, Libra will be controlled by members of Libra Association such as VISA, Uber, etc. As the opposition for Libra increases with time, let’s see how representatives of Facebook’s cryptocurrency cope with strict and harsh sentiments of banks and governments.