Officials at the Bank of Japan, Japan’s central bank, are reportedly concerned that Facebook’s new “difficult to regulate” cryptocurrency could have a calamitous effect on global financial systems, all while exploiting those very systems without paying the costs, Nikkei Asian Review (NAR) reports.
Legislators in the US, Europe, the UK, and Australia have also been outspoken about their concerns regarding Libra, a cryptocurrency network Facebook hopes to roll out through its social network (comprised now of 2.7 billion users) in 2020.
Once implemented, detractors claim the coin could allow Facebook users to transmit money across borders, including illicit funds, with potentially little interference.
Bank of England Governor Mark Carney remarked recently that Libra’s implementation and subsequent accessibility to 2.7 billion Facebookers would mean the network, “would instantly become systemic and will have to be subject to the highest standards of regulation.”
Regulators also reportedly, fear that, “Libra’s very convenience arises from the same factors that make it difficult to confirm user identities and prevent money laundering,” according to NAR.
But the coin’s effect could go deeper than that, say banking officials in Japan. According to NAR, “The virtual coin is regarded in some corners as a fundamental challenge to governments’ authority over currency.”
“It will move money into an absolutely virtual world, so it is completely different than other forms of digital payment,” an unnamed BOJ official remarked recently.
But the biggest problems could arise from how Facebook plans to collateralize the Libra network.
According to the Libra white paper, Libra will be tied to a pool of “low-volatility assets, such as bank deposits and short-term government securities in currencies from stable and reputable central banks,” in something called the “Libra reserve.”
But this system may not just be about balancing the books, NAR writes:
“This move to avoid tying Libra to one currency appears aimed at keeping individual countries from exerting regulatory influence over the coin.”
“If Libra were to drive up demand for short-term government securities, which financial institutions favor as collateral for their high liquidity, interest rates could take an unexpected dive. Wild swings in rates, coupled with an outflow of deposits from regional banks, could hurt stability in financial systems overall.”
There are also concerns that, given that Libra users will not receive interest, ” if the virtual coin’s profile grows, traditional monetary policy moves involving the raising or lowering of interest rates could lose their potency.”
Facebook’s corporate power might grow from Libra, but the system as it is currently designed would be “piggybacking for free on a financial system that takes heavy costs” to manage, said one BOJ official.
Meanwhile, Bank of Japan Governor Haruhiko Kuroda said June 20th that he intends to “keep careful watch” over developments in cryptocurrencies.