The Governor Lael Brainard, of the US Federal Reserve on Wednesday stated Facebook’s digital currency project Libra faces a “core set of legal and regulatory challenges.”
Social media giant’s stablecoin that is linked to fiat money and other sound assets to mitigate fluctuations in the price of cryptocurrencies like Bitcoin, remains unproven with a vague set of permissions for customers.
Stablecoins put Consumers at Risk
Brainard said speaking at a recent meeting in Germany,
“What would set Facebook’s Libra apart, if it were to proceed, is the combination of an active-user network representing more than a third of the global population with the issuance of a private digital currency opaquely tied to a basket of sovereign currencies,”
“Without requisite safeguards, stablecoin networks at global scale may put consumers at risk.”
As we have seen, Libra isn’t any step closer to obtaining any pull among major regulators. However Blockchain capital in its predictions for 2020 said Libra will, in fact, receive the green light for a dollar-backed stablecoin in the face of competition from China.
However, some of the companies like PayPal, Visa, and Mastercard that were part of the consortium to support a digital currency with hard assets have already withdrawn. Recently, Libra quietly updated its white paper to remove the dividends payable to early investors i.e. Libra Association members.
High Threshold of Legal and Regulatory Safeguards Needs to be Met
While central banking institutions worldwide are looking into how to manage this growing sector, many of them are on their way to creating and launching their own digital currencies.
The technology underlying the digital currencies, however, has the benefits in terms of decreasing the expense and expediting of the transfers of money, pointed out Brainard. But she also said there are “advantages associated with current arrangements” that is the issuance of physical cash as well.
She further talked about the all barriers with the chances for fraud and their uses for money laundering that cryptocurrencies still need to clear. Theft and fraud losses related to cryptos are estimated to be doubled to about $4.4 billion in 2019, Brainard said. She added,
“Given the stakes, any global payments network should be expected to meet a high threshold of legal and regulatory safeguards before launching operations.”