South Korean financial regulator joins the ever-increasing list of regulator’s showing concern over Facebook’s recently unveiled Libra cryptocurrency project. According to a new Korean-language trends update published July 5 and reported by CoinDesk Korea.
As per the report, the nation’s Financial Services Commission (FSC) is pondering what might occur “If 2.4 billion Facebook users worldwide transfer one-tenth of their bank deposits to Libra.” If and when such a scenario comes about, banks’ solvency would diminish along with their loan reserves, posing a threat to emerging markets from the relocation of the capital out of those countries.
The FSC further raised concerns that bank runs a risk of financial or foreign exchange crises, as people will move their national fiat currency to Libra. Though Libra is expected to bring simplification of money exchange and remittances it also brings the risk of limiting the central banks’ ability to control international capital movements.
If Libra becomes widely excepted and exchanged for central bank currency, the effectiveness of monetary policy would also become limited. The agency also expressed concern about money laundering issues that would come without proper bank-like controls. It added that “a large financial institution, such as Goldman Sachs or JPMorgan,” refusing to participate in Libra.
The report stated the project as a major threat to the traditional banking industry. When a company in the likes of Facebook, buys a bond instead of making a bank deposit with customer funds, the financial condition of the bank may worsen. Further if Libra allows virtually free overseas payments, South Korean banks’ will lose trillions in revenues from remittances.
Libra was first unveiled last month, though rumors and speculations about it have been making the rounds for months. Facebook has lined up 27 launch partners, including crypto exchange Coinbase, and intends to have at least 100 members for the Libra Association, which will act as the cryptocurrency’s governing council, when the token goes live.
Interestingly, Libra’s commercial success is higher than those of other cryptocurrencies. The FSC elaborates that offering financial services through its social media services including Facebook, WhatsApp and Instagram and their billions of users, the firm can easily guarantee convenience and price competitiveness.
The FSC stressed that the report is to “facilitate the understanding of the press and other media” on overseas trends and not its official opinion on Libra. Other regulators have further questioned the project, the House Financial Services Committee has scheduled a hearing for July 17, a day after the Senate Banking Committee is set to hold its own hearing.
The regulators across the globe have shown concern over Libra’s launch ever since the projects formal announcement was made. Recently, the members of the G7 formed a task force led by France, that will look into the project.