Facebook’s recently unveiled Libra cryptocurrency project threatens the stability of financial systems, according to a South Korean financial regulator.
In a new Korean-language trends update published July 5 and reported by CoinDesk Korea, the nation’s Financial Services Commission (FSC) looks at what might occur “If 2.4 billion Facebook users worldwide transfer one tenth of their bank deposits to Libra.”
Should that scenario come about, banks’ solvency would diminish, as would their loan reserves, representing a threat to emerging markets from the relocation of the capital out of those countries.
The FSC also raised concerns that bank runs could occur during financial or foreign exchange crises, as people move their national fiat currency to Libra. The simplification of money exchange and remittances through Libra is also expected to limit central banks’ ability to control international capital movements. The effectiveness of monetary policy would also be limited if Libra becomes widely exchanged for central bank currency.
The agency further expressed concern that Libra could be widely used for money laundering without proper bank-like controls. It added that “a large financial institution, such as Goldman Sachs or JPMorgan,” had refused to participate in Libra.