Facebook seems to be controversy’s favorite child, as its new cryptocurrency project Libra is facing scrutiny from regulators around the globe. The main reason for concern is Libra’s financial model where it will be backed by a number of fiat currencies and security bonds.
Japanese regulators have pointed out some genuine concerns over this model. Since Libra would be backed by a number of fiats from different countries, it won’t have to comply by a single regulatory body, giving it an unfair advantage over other digital currencies. A recent report published by Nikkei Asian Review outlines the flaws and drawbacks in the Libra cryptocurrency and how it could pose a threat to the existing financial system. The report also quotes an anonymous Bank of Japan official as saying,
“It will move money into an absolutely virtual world, so it is completely different than other forms of digital payment.”
Japanese Regulators are Worried That Libra Might Disrupt Their Financial Ecosystem
Japan is the most crypto compliant nation of the world and often accounts for highest trading volumes from any country, all thanks to consumer-friendly crypto regulations. They are also working closely with other G20 nations to guide them in formulating a balanced crypto regulatory framework. So, if Japan is concerned over Libra, the world must pay attention to what they are saying.
The Nikkei report went onto state that Libra could lead to an outflow of funds from the minor institutions as the customers would be buying these Libra tokens using their national fiat directly, withdrawing money from the regional banks. Facebook would keep these monetary reserves in larger Japanese banks, causing an imbalance in the economy.
Another factor that has caused unrest among the Japanese regulator is the use of government securities, the report suggests that the surge in demand for government securities would lower the interest rates and harm Japan’s financial ecosystem.
US lawmakers Want To Shut Libra Until a Complete Assessment is Done
The concerns over Libra is not just limited to Japan, even back home in the US similar fears over the working structure of Libra has prompted them to ask Facebook to freeze any further development on the project until a complete assessment is done.
Democrats even wrote an open letter to Facebook describing their concerns over Libra and how it could lead to a new world financial system. The open letter read,
“It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy,”
The concerns are genuine especially when Facebook is in question, remember the Cambridge Analytica debacle, even after the expose the social media giants did not face any repercussions for their acts, all they did was say sorry and move on. Another peculiar thing to notice with the Libra project is that it is not competing with the likes of other cryptos, but directly against central banks
Apart from the US and Japan, other nations which have shown concern over Facebook’s crypto project Libra includes France, UK, and Singapore.