Lael Brainard of the US Federal Reserve spoke about the immense risks associated with Libra, the Facebook stablecoin, at the European Central Bank (ECB) forum in Frankfurt, Germany.
According to reports, it appears that Brainard, a member of the Board of Governors of the Federal Reserve, has warned the ECB about the future problems that Zuckerberg’s currency would pose to the financial system.
Specifically, Brainard commented:
“With nearly one-third of the global population as active users on Facebook, the risks to the financial system of cryptocurrencies could be magnified by a widely accepted stablecoin for general use”.
The risks associated with Libra listed by the Fed appear to be related to liquidity, credit, market or operational issues, which could trigger a loss of confidence.
The crypto world needs effective management, Brainard continues, so that it can be controlled.
He said that losses from cryptocurrency fraud and theft have doubled since last year and that the main culprit for these losses seems to be the hacking of exchanges.
“To counter the risks, anti-money laundering, counterterrorism financing and know-your-customer safeguards are paramount, but one researcher found researchers found roughly two-thirds of the 120 most popular cryptocurrency exchanges have weak protections in these areas. Only a third of the most popular exchanges require ID verification and proof of address to make a deposit or withdrawal”.
The crypto situation outlined by Brainard is one in which the regulatory framework is not yet so strong, a context in which laws are not able to act as a guarantor, and which could also drag Libra with it, since it is assumed to be a stablecoin of global use thanks to the users of Facebook.
A guarantee that in the world of fiat or traditional currencies is in the hands of banks that protect users and consumers from fraudulent transactions.
Moreover, Brainard warns the ECB that Libra’s risks for consumers also concern its price with reference to the underlying assets, for which the users do not seem to have any rights.
Zuckerberg’s project has shaken the whole globe and it is no secret that regulators are criticising it. However, after China’s statements on issuing its own national currency, it doesn’t seem that the whole West sees it in the same way as the US.
While the US highlights Libra’s risks to the financial system, it seems that the real problems can be of a completely different nature, such as the morality of granting a private global giant the power to create its own currency.